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Global CIO Office
Beyond the pandemic Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd | February 2021
Japan investment strategy Japan asset allocation Global investment strategy Pandemic shock Catalyst for Review of our portfolio allocations Retain preference for EM equities long-term change
page 3 page 6 page 10
Important Information This report represents the views of the Investment Strategy Department of CS and has not been prepared in accordance with the legal requirements designed to promote the independence of investment research It is not a product of the Credit Suisse Research Department even if it contains published research recommendations CS has policies in place to manage conflicts of interest including policies relating to dealing ahead of the dis-semination of investment research These policies do not apply to the views of Investment Strategists contained in this report Please find further important information at the end of this material Singapore For accredited investors only Hong Kong For professional investors only Australia For wholesale clients only
Editorial
Michael Strobaek Global Chief Investment Officer
Burkhard Varnholt Chief Investment Officer ndash Swiss Univer-sal Bank
Progress on the COVID-19 front has been slow and bumpy with many Western economies still stuck in more or less stringent lockdowns Indeed we expect the ongoing restric-tions to lead to a soft patch in economic activity this quarter However as vaccine rollouts accelerate and infection rates decline meaningfully while strong fiscal and monetary policy support remains in place the second half should see strong economic growth This should further support cyclical assets
In the most recent meeting of our Investment Committee we therefore decided to retain our preference for equities partic-ularly emerging market equities and commodities We expect these asset classes to benefit from the eventual strong eco-nomic pick-up and central banksrsquo continued commitment to keep financial conditions easy Yet even if central banks keep short-term interest rates unchanged increasing growth momentum suggests that yields on government bonds will continue to rise As credit spreads are now close to post-fi-nancial crisis lows rising yields on benchmark bonds will hurt returns in credit We therefore lower our return outlook for developed market investment grade bonds from attractive to neutral and we take profit on our successful overweight allo-cation to emerging market hard currency sovereign bonds In addition we still favor cyclical and especially commodity currencies and believe that the USD will weaken further
On a more long-term note it is tangible that investors are in-creasingly mindful of environmental social and governance (ESG) criteria In the pages ahead we present our ldquoESG in-tegratedrdquo framework designed to help investors gradually transition to portfolios that perform solidly on both traditional financial performance metrics and ESG metrics
Enjoy the read
In this issue
Japan investment strategy 3 Pandemic shock Catalyst for long-term change
Japan asset allocation 6 Review of our portfolio allocations
Supertrends 7 Supertrends Investment solutions
Economics 9 Positive growth outlook beyond winter soft patch
Global investment strategy 10 Retain preference for EM equities
Special topic 11 ESG Integrated
Special topic 13 Bullish hopes in Chinarsquos Year of the Ox
Fixed income 14 EM HC corporate bonds preferred
Equities 15 Remain constructive on global equities
Alternative investments 16 Still positive on commodities
Foreign exchange 17 Keep favoring cyclical currencies
Forecasts 18 At a glance
Editorial deadline 17 February 2021
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 2
Japan investment strategy
Pandemic shock Catalyst forlong-term change The COVID-19 pandemic may accelerate structural change in society and economy
Policymakers will seek to create a pandemic-resistant society and economy
Soichiro Matsumoto Chief Investment Officer Japan
Lockdown policies constitute a deflationary shock Globally lockdowns have been implemented on a wide scale to control the spread of COVID-19 infection This has led to a rapid contraction in demand and a downturn in the economy which has produced a deflationary shock to the global econ-omy To cope with this severe shock governments have launched counter-deflationary measures (reflationary policies) such as monetary easing and fiscal stimulus programs As the COVID-19 pandemic spreads and remains stubbornly resilient these counter-deflationary measures will need to be prolonged
In Europe and the USA the start of vaccination efforts has slowed down the spread of the disease In addition economic activity has recovered quickly in China and other Asian coun-tries due to their success in achieving early infection control The global economy has begun to recover backed by aggres-sive policy support The recovery is gaining momentum as investors are turning their attention toward equities (especially economically sensitive stocks) and commodities which benefit significantly from reflationary policies
A spike inflation can be a tail risk There is much to learn from Japanrsquos previous experience re-garding risks of taking only small steps to counter deflation In contrast the unprecedented scale of the measures currently being taken could lead to a potential ldquooverkillrdquo In particular the large fiscal spending plan currently being mooted in the USA will likely prompt caution about the tail risk of a sharp rise in long-term interest rates on account of a potential unanticipated spike in inflation
This means not only that bond prices will fall and support for current equity valuations will recede but also that there is a greater risk of fiscal pressure from significantly higher interest payments on public debt However the supply-demand gap in major countries is currently wide and we believe such concerns should be consigned to tail risk management
Post-pandemic social and economic changes will continue to accelerate Once the pandemic winds down the worldrsquos social and eco-nomic landscape is unlikely to return to the pre-pandemic ldquonormalrdquo Even if the COVID-19 outbreak is contained the risk of a new pandemic will always persist On the other hand it will be quite difficult to continue with the large-scale mone-tary easing and fiscal spending measures
Therefore the world will need to adjust socially and econom-ically such that it becomes more resistant to future pandemics As was the case when our global society and economy under-went major changes with the advent of the Internet those societies and economies that are able to adapt quickly will come out on top
Supply chain restructuring Due in part to the uncertainty and confusion surrounding the response to the COIVD-19 pandemic the West plus Japan seems to be growing increasingly wary of China In terms of geopolitical risk as the confrontation between the USA and China intensifies the major economies will each seek to in-creasingly rely on domestic supply chains
The global supply chain will likely undergo rapid restructuring especially in areas relating to technology such as cutting-edge semiconductors These are becoming increasingly im-portant not only for economic growth but also for national security Additionally there will be a need to rebuild procure-ment systems for critical medicines and medical supplies which were disrupted by the pandemic
In the past supply chain management has focused primarily on economic benefits but now the emphasis will be on supply chain resilience and independence This will add to cost pressure for companies but we also expect to see benefits due to increased new investment
Supertrends Increasing momentum for change The changes currently accelerating in the wake of the pan-demic will drive long-term structural changes which we have previously covered in our Supertrends reports The widespread adoption of remote work represents a new trend and will constitute a major driver of social and economic digitalization
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 3
Excessive urbanization which has contributed to the spread of infection will stall and this will provide an opportunity to rebuild urban infrastructure
Efforts to reduce socioeconomic disparities are also likely to gain momentum These efforts represent just the start of a push to prevent societies and economies from fragmenting in the face of a pandemic
ESG investment Growing interest in a sustainable so-ciety After the 2008 Global Financial Crisis the world became more aware of the pitfalls of short-term profit-seeking As a result many pension funds and investment institutions have become more supportive of the Principles for Responsible Investment (PRI) as promulgated by the United Nations There is now greater focus on working toward realizing a sustainable society which has led to changes in corporate behavior like improved governance As politicians are also aggressively moving toward measures to promote a sustain-able society a slew of new regulations relating to environmen-tal social and governance (ESG) have been introduced As a result ESG investment is gaining attention as a long-term investment theme and increasingly influencing stock prices
Increasing equity investment Bond investment returns have declined in the current pro-longed low interest rate environment On the other hand the amount of available investible funds is likely to increase due to the easy monetary policy while demand (for bonds) from pension funds is likely to trend higher on account of growing liabilities as the population ages
Long-term changes in global social and economic structures provide investment opportunities in various markets and businesses This will lead to a rise in investor allocations to related stocks and alternative investments
Focus shifts to corporate bonds As returns on government bond and other safe bond invest-ments have decreased considerably in this low interest rate environment investors have moved to more credit-related instruments However the interest rate spread on credit is shrinking gradually Therefore as part of our updated perspec-tive we are focusing on corporate bonds that are denominated in major currencies and are issued by emerging market (EM) companies EM companies are also expanding the scale of their operations and many have stable cash flow The high growth potential of Asian companies makes them an attractive investment target for investors seeking yield
Recommended investment strategies
Investors have learnt an important lesson from the unprece-dented pandemic They are now accustomed to the ldquoGreat Moderationrdquo and conscious of hedging their risks We believe the market has rediscovered the significance of global asset diversification as part of a strong long-term investment strat-egy
Strategies related to prolonged policy support mea-sures With ultra-loose monetary policy likely to be in place for an extended period investors should look to alternative strategies designed to increase yield Every investor will have a greater need to look for investments that convert an acceptable level of risk into yield This includes range-trading in currency markets where interest rate differentials are narrowing and the risk of large fluctuations is receding
Stocks that fit in with long-term themes that are expected to benefit from the transition to a new economic system post-COVID-19 continue toremain attractive Gold is also likely to continue to attract attention as a risk hedge
Strategies for the onset of the economic recovery As the economy recovers while interest rates remain low in-vestment in credit (corporate bonds) will become attractive In particular Asian countries that have been successful in controlling the spread of infection and dollar-denominated bonds issued by companies in this region may constitute an effective strategy for seeking yield
The economic recovery and changing consumption styles are likely to increase investor interest in economically sensitive value stocks as well as stocks of companies that fit in with new market landscape As companies become more aggres-sive in mergers amp acquisitions (MampA) and other investments to reform their business structure private equity too can be an interesting investment option
Accelerating changes related to the pandemic Investment opportunities provided by receding globalism Political commitments designed to deal with Japanrsquos social fragmentation are expected to provide long-term invest-ment opportunities We now focus on strategies including infrastructure investment funds private equity and the long-term themes discussed in a Supertrends series report
Investment lesson ndash increased awareness of risk hedging A growing awareness of the importance of risk prepared-ness is expected to lead to greater global asset diversifica-tion as part of a long-term investment strategy This is because such a strategy can be expected to effectively stabilize returns without incurring a high additional cost
Investment themes related to the advent of a new digital society The pandemic has changed the way people inter-act with each other on a socioeconomic level considerably This has accelerated the rate of digitalization across the economy Our Supertrends series reports explore a number of related investment themes and strategies
Investment opportunities related to full-scale efforts to improve sustainability The world as a whole is now more amenable to accepting the costs of improving sustainability One of the best examples is efforts to create a carbon-free society The adoption of investment metrics that incor-porate an awareness of ESG will also increase Additionally our Supertrend ldquoClimate changerdquo encompasses pertinent investment ideas
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 4
Reaffirming the appeal of Supertrends Examining tail risk Uncontrollable inflation and rising After the pandemic our society is changing at an accelerating pace Our long-term investment themes called Supertrends can be a suitable option for the prudent investor in such times
interest rates In response to the pandemic global debt has ballooned to unprecedented levels Thanks to historically low interest rates the burden of this debt is sustainable However investors should be aware of related risks Uncontrolled inflation and a sharp rise in interest rates may continue to be a tail risk for the market (17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 5
Japan asset allocation
Review of our portfolio allocations The annual review of our Strategic Asset Allocation leads us to reduce our allocation to bonds in portfolios and increase allocations to equities and alternative investments
Soichiro Matsumoto Investment map (regions vs asset classes) Chief Investment Officer Japan
Annual review of our Strategic Asset Allocation Every year Credit Suisse updates its macro market forecasts (risk and return potential) for the next five years and publishes these forecasts in the form of our Capital Market Assumptions (CMA) Based on the new CMA we have review and update our our medium-term asset allocation benchmarks also known as our Strategic Asset Allocation (SAA)
For our 2021 SAA the allocation to bonds has decreased due to lower expected returns while our allocations to equities and alternative investments have increased Source Credit Suisse
(16022021)
JPY international tactical asset allocation (TAA balanced) Balanced TAA Vs benchmark Benchmark SAA 2021
January February Change January February
Liquidity 20 40 20 -30 -10 50
JPY 20 40 20 -30 -10 50
Fixed income 465 315 -150 -10 -10 325
JPY 25 35 10 -15 -05 40
Global corporates 330 180 -150 -15 -15 195
Global high yield 30 30 00 00 00 30
Emerging markets bond USD 40 30 -10 10 00 30
Emerging markets USD corporate 00 40 40 NA 10 30
Equity Emerging markets bond LC 40
445 00 520
-40 75
10 20
NA 20
00 500
Japan 155 180 25 -10 -10 190
World (ex Japan) 290 340 50 30 30 310
Switzerland 05 05 00 00 00 05
Eurozone 25 25 00 00 00 25
North America 125 150 25 00 00 150
United Kingdom 20 20 00 10 10 10
Australia 05 05 00 00 00 05
Emerging markets 50 60 10 20 20 40
LatAm 00 00 00 00 -05 05
APAC 45 50 05 20 20 30
EMEA 05 05 00 00 00 05
Supertrends 60 75 15 00 00 75 Alternative investments 70 125 55 20 00 125
Real estate Japan 25 25 00 00 00 25
Hedge fund 00 25 25 NA 00 25
Private equity 00 75 75 NA 00 75
Commodities 45 00 -45 20 NA 00 Total 1000 1000 00 00 00 1000
Source Credit Suisse
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 6
Supertrends
Supertrends Investmentsolutions In this installment we focus on the ldquoClimate changerdquo Supetrend and suggest investment solutions from sectors that can contribute significantly to reducing greenhouse gas emissions as well as mitigating long-term impacts of global warming
Maki Shimizu Investment Strategist - Japan Strategy
Policy tailwinds The ldquoClimate changerdquo theme is strongly influenced by policy factors hence we expect the recent change of government in the USA to lead to renewed interest in environmental policy issues On his first day in office last month US President Joe Biden announced his countryrsquos return to the Paris Agreement ndash an international framework for combating global warming ndash and began to shift policy course from the previous adminis-tration On environmental issues it may be difficult to reverse the international communityrsquos distrust and skepticism of the USA brought about by the ldquoAmerica Firstrdquo approach of the past four years However shifting to renewable energy sources is one of the major policy targets of President Biden and international cooperation on this issue will likely be gen-uinely welcomed
Currently countries that have ratified the Paris Agreement are struggling to meet their targets for reducing emissions by 2050 As policy support increases business opportunities related to environmental policy are likely to expand at the private sector level Here we focus on sectors that fall under this Supertrend because of their ability to contribute signifi-cantly to reducing greenhouse gas emissions and mitigating long-term impacts of global warming
Investment solution features A common catchphrase for all four sub-themes associated with this Supertrend is ldquosustainable energy supplyrdquo With the Paris Agreementrsquos goal of ldquocarbon neutralityrdquo in mind we look for investment opportunities arising out of a structural transformation in the energy sector via carbon-free electricity sustainable transportation pioneering oil and gas energy conversion and agriculture and food sub-themes We high-light climate change-related companies that primarily develop renewable energy and provide energy storage technologies
Besides companies that are likely to see continued growth via the long-term shift in energy policy we highlight others that are likely to reform the agriculture sector by incorporating automation in their production processes Additionally we highlight related entries from our environmental social and
governance (ESG) related stock list (ESG Top 25) that were discussed in the recent Supetrends report In mutual funds in addition to the Global Security Fund we offer solutions that enable investment in areas related to rising climate change awareness from an ESG perspective
(17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 7
Supertrends
Theme Detail Recommended solution
Anxious societies ndash Inclusive capitalism
AM One Global Security Stock Fund CS Beneficiaries of Anxious Societies Selection
Affordability Basis goods such as housing healthcare and pension have become unaffordable for many people
Employment Skilling reskilling and upskilling are crucial steps as technical progress radically changes required skill set
Personal security Everyday challenges such as the pandemic outbreak or cybersecurity are the most important pain points for people
Infrastructure ndash Closing the Global Core Infrastructure Stock gap Fund CS Infrastructure List
Transport Developed markets have to invest in project replacements while emerging markets continue to spend on growth
Energy amp water Energy transition toward renewables to limit global carbon emission Middle East faces an acute water shortage
Smart cities As 68 of the worldrsquos population will live in urban areas by 2050 cities must become smarter to handle this strong growth
Telecom infrastructure As 5G will be the next major investment cycle for the mobile industry mobile traffic may grow almost five-fold
Technology at the service of AM One Global Security Stock humans Fund CS Technology Selection
Digitalization The number of connected devices is surging and thus edge computing is expected to gain traction in order to capture even more value from data
Virtual reality Growing to the size of todayrsquos smartphone market in the years ahead
Artificial intelligence (AI) Material growth potential for home industries and cities digitalization and healthtech and fintech markets
Industry 40 Robots and automation are entering various non-industry sectors demand for industry robots is rising
Healthtech Digitalization solution biotechnology and AI in product development and healthcare research Silver economy ndash Investing for Select Sector SPDR ETFs (Health-population aging care Consumer Staples Consumer
Discretionary) CS Silver Economy Stocks
Therapeutics amp devices Biopharma and medical device companies to innovate around senior conditions such as heart disease amp cancer
Care amp facilities Managed care organizations hospitals and dedicated facilities to face increasing demand
Health amp life insurance Private pension gap in emerging markets and growing importance of private pension fund amp insurance solutions
Senior consumer choices High spending power of seniors to benefit consumer companies with senior-centric offerings Millennials values AM One Global Security Fund CS
Millennials Favorites
Sustainable business and invest- ESG overlay across the entire millennials stock universe to underpin the importance of sustainability ments
Digital natives Being connected 247 having a strong preference for technology brands driving an education technology revolution
Fun health amp leisure A new way of living and spending with substantial growth potential in emerging markets Climate change AM One Global Security Fund CS
Climate Change Choice ESG Top 25 promotion list
Carbon-free electricity CO2-neutral electricity production and the replacement of coal-fired electricity as a key component of CO2 reduction
Oil amp gas transition pioneers Demand for fossil fuel remains high for now while the transition pioneers will be leading the sector
Sustainable transport Sustainable fuels a switch to electric vehicles more efficient engines and railroads will reduce greenhouse gas (GHG) emissions
Agriculture amp food A growing population and a high CO2 emission from the agriculture sector require efficiency gains
Source Credit Suisse
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 8
Economics
Positive growth outlook beyondwinter soft patch After a likely soft patch in the winter months we expect very strong growth this year
The main risk to our near-term forecast is new virus strains that may necessitate further shutdowns
James P Sweeney Chief Economist and Regional CIO Americas
Peter James Foley Economist
Global growth rebounded strongly in the second half of 2020 We expect a winter soft patch most noticeable in Europe as viral contagion leads to mobility restrictions that hamper service sector activity Beyond that the growth outlook is very positive
Global demand has recently been propped up by developed market households Real retail sales in developed economies have exceeded pre-pandemic levels since September and are now above the long-term trend Business investment has risen too but not as much as consumption The onus is on business investment to drive the recovery further
A dominant feature of the pandemic economy has been the contrast between goods demand which has recovered sharply and services demand which has suffered due to social distancing The divergence is likely to unwind this year as spending that was redirected to goods in 2020 returns to services in 2021 Services consumption in developed market economies is about twice as large as goods consumption and is likely to increase strongly this year as vaccine rollouts support an expansion of activity
In that sense consumer spending on services might substitute some goods spending But at the same time a resurgent service sector may give further tailwinds to the goods sector through business spending
Uncertainties about variants vaccines and stimulus COVID-19 infections are falling in Europe and the USA But new highly contagious strains risk new or extended shut-downs which are the main downside risk to our near-term forecast
Vaccine rollout has not been smooth but the USA and UK will likely vaccinate a sufficient share of their populations by this summer that a strong services recovery is likely Europe and other major economies lag behind which may mean longer restrictions on activity Normalization appears to be out of reach before Q3 in large economies but vaccinations will support increased mobility
The USA is likely to pass another pandemic stimulus bill soon It will likely cost at least half the USD 19 tn price tag of the original plan but even this reduced size will substantially affect the US growth outlook Direct checks to households will im-mediately boost consumer spending and increase household savings further
There is less uncertainty over Eurozone policy support but it may not be forceful enough Europersquos fiscal policy so far has focused on mitigation rather than stimulation But this means that as the economy recovers fiscal support will fade meaning limited upside to growth The European Central Bank has stated it can ease policy further but it is unclear whether this will boost lending in the real economy
Last yearrsquos contraction in the Eurozone was larger than in the USA But the rebound is likely to be weaker We expect Eu-rozone GDP to grow 50 in 2021 while US GDP should grow 57 (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 9
Global investment strategy
Retain preference for EM equities Continued fiscal and monetary policy support and an easing of the pandemic should help Western economies see strong growth in the second half of the year
We retain a cyclical tilt in portfolio allocations through overweight positions in equities with a preference for EM equities and commodities
Philipp Lisibach Chief Global Strategist
The Credit Suisse Investment Committee (IC) has reduced emerging market hard currency (EM HC) sovereign bonds to strategic allocations and changed the return outlook for devel-oped market investment grade (IG) bonds from attractive to neutral Equity allocations are kept at overweight with a continued preference for emerging markets The BCOM also remains at overweight
Reflation expected to support cyclical assets Even though the pandemic continues to weigh on economic activity falling infection rates and hospitalizations alongside vaccine rollouts should allow economies to reopen In combi-nation with continued fiscal and monetary policy support Western economies are likely to see exceptionally strong growth in the second half of 2021 The USA is currently benefiting from a second relief package which is likely to be followed by a third one soon adding fuel to the expected concerted recovery
As such the IC keeps a cyclical bias in portfolio allocations expressed by overweights in equities and the broad commod-ity index (BCOM) In equities we continue to express a pref-erence for emerging markets specifically Chinese equities which show strong price momentum having outperformed global equities since the start of the year Although China has initiated policy-tightening measures we think it will take these steps in a controlled manner without risking denting market sentiment
Risk of inflation scare mitigated by central bank com-mitments Besides the risk that new virus strains with potential resistance to vaccines may fuel market concerns markets could start consolidating in coming months should a rise in US inflation
due to base effects lead to an inflation scare Although we think that such an inflation increase will be temporary uncer-tainty about the outlook for the second half is elevated due to the expected strong growth and likely supply-side bottle-necks as economies reopen To mitigate this risk the contin-ued commitment by central banks above all the US Federal Reserve (Fed) to keep financial conditions easy will be key Recent comments by Fed Chair Powell stressing patience and suggesting that the economy is far from overheating give us confidence that this key market support will stay in place For real assets such as equities and commodities this should continue to prove beneficial
Tight credit spreads Although the anchoring of treasury yields for shorter maturities via central banksrsquo rate guidance should prevent a sudden surge in longer-dated yields we expect them to grind higher as growth momentum builds Thus performance is expected to continue to suffer and the IC is keeping government bonds at underweight Due to tight IG credit spreads the IC has reduced the return outlook for IG from attractive to neutral For EM HC sovereign bonds we take profit on our successful overweight and cut portfolio allocations back to strategic levels as spreads have eroded Investors should find more value in EM HC corporate as well as selected EM local sovereign bonds Despite some USD consolidation at the start of this year the USD is likely to continue its weakening trend against other major currencies in coming months
Watch a video featuring the highlights of the Credit Suisse investment strategy wwwcredit-suissecomciofilm
(15022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 10
Special topic
ESG Integrated Investing according to environmental social and governance (ESG) criteria is in the process of becoming mainstream
Combining the House View with ESG convictions ldquoESG Integratedrdquo is a set of best ideas for investors to gradually transition to multi-asset portfolios that perform solidly both on traditional financial performance metrics and on ESG metrics ldquoESG Integratedrdquo is part of our Signature Convictions
Nannette Hechler-Faydherbe Chief Investment Officer ndash International Wealth Management
Jessie Gisiger Head of Credit Strategy and Investment Themes
Green transitions are at the heart of the fiscal spending and recovery plans put in place in response to the COVID-19 pandemic Against this backdrop strong regulatory momen-tum and fiscal ambitions in the USA Europe and China have only added to a global trend toward integrating ESG criteria at every level of economic activity
There is growing evidence that adhering to ESG criteria not only helps to mitigate our impact on climate change but also supports financial risk-reward for several reasons First be-sides increasing transparency and awareness ESG filters help keep in check the risk of heightened regulatory scrutiny that non-ESG-compliant business practices increasingly face Second ESG factors can impact financial business conditions such as the incurred cost of capital Focusing on good gover-nance and keeping an eye on regulatory risk are equally likely to be beneficial when considering default risk in the corporate bond market Third there are strong investment themes emerging from the policy support currently developing espe-cially in climate change to achieve net-zero carbon emissions by 2050
Signature Convictions ESG Integrated Combining key elements of the Credit Suisse House View with thematic priorities in ESG investing that emerge from these catalysts we have developed a set of best ideas (see table) that can help investors gradually transition their invest-ments toward multi-asset portfolios that perform solidly on both traditional financial performance metrics as well as ESG metrics
In fixed income ESG emerging market corporate bonds and ESG subordinated bonds offer investors an avenue to earn a yield pick-up but at a lower risk of credit spread widening than the broader index Empirical assessments have also shown that companies with higher ESG scores tend to have a lower probability of default Investors looking for an equiva-lent to money-market instruments may consider impact invest-ments which deliver low single-digit returns with limited vola-tility
In equities we highlight the Supertrends climate change and sustainable infrastructure as two key ESG-related themes that are focused on decarbonizing economic activity and are catalyzed by global regulatory momentum For investors looking for single-stock investments our Credit Suisse ESG Top 25 list includes stocks from our high conviction list that are in category 3 (ldquoESG awarerdquo) or category 4 (ldquoThematicrdquo) of our Credit Suisse ESG classification framework
Investors who would like to invest according to our preference for EM equities also have the option of doing so in an ESG-compliant manner through the MSCI Emerging Markets ESG Leaders Index That index has on average outperformed the MSCI Emerging Markets Index since 2008 This outperfor-mance can be explained by the MSCI Emerging Markets ESG Leaders Indexrsquos higher exposure to growth sectors and strong orientation to new economy sectors that benefit from powerful structural growth drivers Separately green real estate is likely to lead to higher occupancy rates and a lower probabil-ity of income loss resulting in a more stable income stream
For investors looking to alternative investments for further diversification impact private equity sustainable alpha hedge fund and carbon emission allowance futures are also interest-ing
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 11
Signature Convictions ESG Integrated
Source Credit Suisse
(16022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 12
Special topic
Bullish hopes in Chinarsquos Year ofthe Ox Our positive view on equities remains in place We express it through a preference for emerging market particularly Chinese equities
After strong gains so far this year we challenge the quality and longevity of Chinarsquos bull market and explain why we remain optimistic
John William Huia Woods CIO APAC
Just ahead of Chinese New Year Chinarsquos benchmark Shanghai Composite Index surged to new highs for the year Chinarsquos strong market gains are fueled by a rush of excess liquidity the likes of which we have not seen since 2015 But experienced investors will know that a rising tide can just as easily ndash and quickly ndash turn into an ebbing tide particularly when fundamentals become unsupportive
Red flags In fact red flags are not hard to find Possibly the most im-portant observation is that Chinarsquos growth momentum has passed its peak and will likely decelerate into 2021 A decel-erating economy does not necessarily hurt a bull market but it does not necessarily help it either
Equally important is the view that Chinarsquos ndash increasingly less dovish ndash authorities are unlikely to further stimulate the economy It has been widely observed that they remain vigilant and concerned toward the possible formation of price bubbles in real and financial assets including equity markets
Indeed the Peoplersquos Bank of Chinarsquos willingness in late January 2021 to withdraw rather than add CNY 570 bn of liquidity from interbank markets ahead of the Chinese New Year suggests that a clear inflection point has been reached with monetary policy now normalizing after two years of stimulus and easy money
Amid decelerating economic growth corporate revenues are under pressure meaning analyst earnings revisions are flat-lining and thus failing to keep pace with more vibrant emerging andor developing markets In absolute terms weaker earn-ings exert upward pressure on valuations Yet a liquidity-driven rally can still push valuations higher
Imbalance The liquidity-centric imbalance at the heart of Chinarsquos bull market leaves it exposed and vulnerable to correction in our opinion An environment of tightening monetary policy decel-erating growth and stretched valuations are generally not conducive to sustained price appreciation In fact in Chinarsquos case incrementally greater inflows of liquidity will be required to sustain existing price levels At least from an onshore per-spective the music will stop
Intriguingly attention is now turning to foreign investor inflows which hitherto have been muted But there are reasons why a rebound in sentiment might be expected including improving geopolitical sentiment with the new administration in the USA and expectation of CNY appreciation which should boost returns for USD investors Overall a reacceleration in flows could be a key factor in keeping Chinese markets supported
Sound diversification is key On balance at least for the next few months we remain overweight Chinese equities in a portfolio context Our funda-mental concerns are medium-term in nature while near-term risks ndash supported by liquidity ndash are tilted toward further price gains In line with our House View we emphasize the value of well-diversified exposure to EM equities overall
(15022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 13
Fixed income
EM HC corporate bonds preferred The ongoing reflationary path is going to support long-dated yields warranting a con-tinued cautious stance on government bonds
We reduce our allocation to EM HC sovereign bonds to benchmark weight We no longer see IG credit as attractive and prefer EM HC corporate bonds
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
Global benchmark yields have continued to trend higher in the last few weeks supported by reflationary expectations Despite the marketsrsquo repricing of more US fiscal stimulus the Federal Reserve (Fed) kept control of front-end rates expectations with the US yield curve further steepening as a result Going forward long-dated inflation expectations are still expected to be the main driver of nominal benchmark yields Both should moderately rise in tandem particularly in the USA With other developed regions following the same reflationary theme albeit with a lag we anticipate that global government bonds will remain an unattractive investment We therefore keep exposure below benchmark allocations in portfolios Furthermore we keep a relatively short duration stance in US Eurozone and Swiss bond markets and prefer US inflation-linked bonds over comparable nominal govern-ment bonds
IG credit no longer attractive prefer EM HC corporate bonds We no longer think that global investment grade (IG) credit offers attractive return potential While monetary policy re-mains supportive IG spreads are already at historical lows and no longer offer enough compensation against the further rise in benchmark yields we expect Global high yield (HY) credit market returns should remain attractive thanks to policy support and the economic recovery we project However we
see limited further spread compression potential in US HY and European HY from the current historical lows We believe emerging market hard currency (EM HC) corporate bonds are most attractive within credit with pro-cyclical emerging markets benefiting from the global growth rebound expected this year At the same time and due to their comparatively low benchmark duration EM HC corporate bonds are less sensitive to higher US government yields than global IG EM HC corporates on average provide similar credit fundamentals to developed market credit but offer more attractive spreads amid the current reflationary environment Also we see more opportunities in EM HC HY corporates particularly in Asia where spreads offer a premium of around 200 bp over US HY
EM HC sovereigns reduced to benchmark allocation EM HC sovereign bond valuations are currently tight with spreads not far off the lows reached after the great financial crisis Inflation has largely bottomed out due to base effects food and energy prices and there is limited scope for further monetary stimulus EM HC sovereign bond spreads have a high correlation with US Treasury yields With the latter still on the rise risks to EM HC sovereign bonds are increasing Positioning is at record highs and flows continue to acceler-ate This suggests that a further strong performance is less likely Given these considerations we have decided to reduce EM HC sovereign bonds to benchmark allocation in our portfolios (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 14
Equities
Remain constructive on globalequities We maintain our attractive return outlook for global equities with a preference for emerging markets UK Germany financials materials and health care
After a double-digit earnings decline in 2020 global earnings are set to recover sharply this year
Marc Haumlfliger Global Equity Strategist
We maintain our attractive return outlook for global equities on the back of supportive monetary conditions vaccine roll-outs growing stimulus prospects and our constructive outlook for economic and earnings growth While traditional valuation metrics remain elevated they look less stretched relative to other asset classes such as global treasury bonds The earnings recovery is key to our thesis of attractive returns for global equities as we do not expect further re-ratings (ie higher multiples) to drive equity markets going forward So far the Q4 earnings results underpin our view that companies have learned how to deal with the current circumstances given earnings results are mostly surpassing projections As a result of this strong showing global EPS growth rates (YoY) will likely be positive again for the Q4 2020 earnings season After an overall double-digit earnings decline in 2020 global earnings are set to recover sharply this year ndash particularly in cyclical market segments Risks to our constructive view on equities come from COVID-19 concerns (mutation potential vaccine disappointments) disappointing fiscal stimulus or earlier-than-expected comments about a withdrawal of mon-etary stimulus
In a portfolio context we keep our overweight in emerging market (EM) equities as we remain bearish on the USD ex-pect higher commodity prices and see the re-opening environ-ment as positive for EM equities We expect cyclical segments that lagged the broader equity benchmark in 2020 ndash such as the UK Germany and financials ndash to catch up amid the im-proved economic outlook and rising inflation expectations
Latest view changes In developed market equities we turn neutral from outperform on Hong Kong equities as a result of their strong performance in recent weeks and increasing macro headwinds In EM eq-uities we now expect South African equities to outperform driven by attractive valuation a strong earnings picture and an accommodative central bank We no longer expect Indian equities to underperform and turn neutral following the gov-ernmentrsquos pro-growth budget announcement an improved macroeconomic outlook and earnings estimates being revised higher at a faster pace than peers
Earnings expected to recover in 2021
Last data point 09022020 Historical performance indications and financial market
scenarios are not reliable indicators of current or future performance Source Factset
Estimates Credit Suisse
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 15
Alternative investments
Still positive on commodities Commodity performance has been strong year-to-date A near-term pause is possible but we retain a positive view and prefer diversified exposure with a cyclical bias
Despite recent resilience we expect listed real estate to lag equities In hedge funds we highlight opportunistic long-short discretionary and EM macro managers as well as private credit
Jelena Kucenko Head of Alternative Investments
Stefan Graber Head of Commodity Strategy
Hedge funds Be selective Hedge funds were flat in January as short covering activity at month-end erased initial gains Fundamental long-short and macro funds suffered the most while relative value and event driven were more resilient Our Trading Conditions Barometer is in favorable territory Combined with regional and sector divergences arising from vaccine rollouts compli-ance with environmental social and governance criteria and record levels of capital-market activity this creates opportuni-ties for long-short managers We also highlight private credit strategies with a focus on consumer loans and mid-market companies which should benefit from resilient household fi-nances and a post-pandemic recovery Discretionary and emerging market (EM) macro managers are preferred in case of market setbacks
Commodities Providing cyclicality and inflation hedge Commodities started 2021 on a strong note focusing on positive growth expectations instead of near-term COVID-19 concerns A near-term pause is possible as the latest gains came ahead of an anticipated reacceleration in industrial ac-tivity That said improved bottom-up fundamentals have flipped aggregate curves into backwardation translating into positive roll yields which may attract additional investor inter-est Commodities also provide a hedge should inflation sur-prise to the upside We retain our positive view on the asset class and favor diversified exposure with a cyclical tilt (oil energy) For oil the March OPEC+ meeting is the next event
risk and a potential source of volatility as the group will likely discuss supply hikes We still think that gold offers diversifica-tion and some upside but the bull run could be maturing as yield curves have started to steepen We thus tone down our optimism on the metal
Real estate Expected to underperform equities Listed real estate slightly outperformed global equities in January thanks to strong earnings results in logistics and a rebound in oversold retail companies as short sellers covered their positions But we believe that further upside potential for the sector is limited as the impact of lockdowns is not yet reflected in landlordsrsquo share prices in our view Additionally valuations in structurally resilient sectors such as logistics and data centers already reflect fundamentals This and the prospect of higher long-term yields and an increased risk of US regulatory headwinds reinforce our negative sector view
Private equity Backdrop still positive Robust investment activity at the end of last year pushed pri-vate equity deal values higher but the asset class still offers better priced opportunities than public markets Dry powder ndash committed but uninvested capital ndash is at a record of over USD 2 trn with subdued fundraising activity expected to re-bound as investors increase commitments in 2021 according to data provider Preqin The expected economic rebound is supportive for the asset class but rising long-term interest rates pose risk to financing costs We highlight strategies offering high growth with limited leverage (venture capital growth capital) and secondary funds which can exploit market opportunities tactically generating excess returns over time
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 16
Foreign exchange
Keep favoring cyclical currencies We maintain a short USD bias and prefer commodity and cyclical currencies such as the EUR GBP or SEK
Within our positive emerging market stance we particularly like the CNY KRW BRL and RUB
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
The USD was broadly flat against other major currencies over the last month Investorsrsquo focus on US fiscal stimulus and an expected rise in US inflation allowed for some normalization in previously large USD short positions While the repricing of near-term growth expectations also in light of a more rapid US vaccination campaign created temporary USD resilience we think this improvement is likely partly reflected in the USD already We maintain that as the Federal Reserve (Fed) keeps short-term rates close to zero for longer there is little room for sustained gains in the USD Moreover US fiscal stimulus will not only deteriorate fiscal balances but also deepen the current account deficit This will also benefit the global econ-omy through improved global trade and sentiment which should weigh on the USD Uncertainties relating to new COVID-19 variants and extended USD short positioning re-main a risk in the short term
Constructive on cyclical currencies A slow start to vaccine rollouts and renewed political risks in Italy somewhat dented sentiment toward the EUR in early February Even so the single currency remained stable vs the USD The Eurozone is facing a delayed recovery but this is consensus already and likely temporary in nature With political risks now subsiding the EU recovery fund operational in the next quarter and the global growth recovery benefitting the export-oriented Eurozone we think EURUSD can gain some further ground and target 124 in 3M Elsewhere in Europe we also remain positive on the SEK and the GBP
vs the USD With global reflation set to continue and com-modity prices likely to remain supported through the ongoing rebalancing we still favor commodity currencies in particular the NZD CAD and NOK
BRL RUB CNY and KRW preferred Emerging market (EM) currencies were broadly range-bound on an index level over the last month but with significant re-turn dispersion across currencies The main arguments sup-porting our attractive view on EM FX remain in place We continue to see further scope for a broad appreciation of EM FX versus the USD Even though the EM economic recovery has peaked economic activity still looks solid relative to de-veloped markets External positions remain in good shape and non-resident flows are still supportive In addition with inflation bottoming and food prices increasing scope for dovish EM central bank surprises seems to be exhausted This should be favorable for EM carry versus the USD
The RUB BRL CNY and KRW remain our preferred curren-cies in EM Both the RUB and BRL are cheaply valued Addi-tionally the RUB should profit from attractive risk-adjusted carry and the BRL from more hawkish central bank expecta-tions In Asia we remain positive on the CNY and KRW and neutral on the other Asian FX We lower our 3M USDCNY target to 635 but keep our 12M target at 625 Our USDKRW targets remain unchanged at 1060 and 1010 in 3M and 12M respectively We retain a mild downward bias on the other USDAsia pairs expecting broad USD weak-ness (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 17
Forecasts
At a glance More information on the forecasts and estimates is available Credit Selected indices on request Past performance is not an indicator of future
Yield Spread Duration 3M TR 12M TR fore-performance Performance can be affected by commissions () (bp) (years) forecast cast fees or other charges as well as exchange rate fluctuations BC Global Aggregate 091 33 731 -010 010
BC Global Treasuries 058 9 862 -030 -050
BC Global IG Corp 141 94 735 033 130 Central bank rate10-year government bonds BC Global HY Corp 429 378 416 062 247
CB rate 10Y JPM EMBI Global Di- 480 344 764 032 126 yield versified HC
in Spot 3M 12M Spot 3M 12M
CHF -075 -075 -075 -026 -030 -030 BC = Barclays Capital IG= Investment Grade JPM = JP Morgan (EMBI+) Index data as of 1522021 Forecast as on 1522021
EUR -050 -050 -050 -035 -030 -030 These forecasts are no reliable indicators of future performance Source Bloomberg
USD 013 000-025 000-025 130 140 150 Credit Suisse GBP 010 010 010 062 050 060
AUD 010 010 010 139 130 140
JPY -010 -010 -010 010 010 010 Foreign exchange
Spot 3M 12M Spot rates are closing prices as of 1622021 Forecast date 1122021 These
EURUSD 121 124 125 forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC USDCHF 089 087 088
EURCHF 108 108 110
USDJPY 10594 10200 10000
Equities EURGBP 087 087 086
GBPUSD 139 143 145 Index Spot PE Div y 3M 12M () AUDUSD 078 078 079
MSCI AC World 1679 202 22 1690 1790 USDCAD 126 123 120
US SampP 500 3933 234 21 3950 4150 EURSEK 1004 1010 1020
Eurostoxx 50 3726 181 26 3700 3850 EURNOK 1016 1020 1020
UK FTSE 100 6749 143 43 6700 7000 EURPLN 449 457 459
Japan Topix 1965 185 21 1940 1970 USDCNY 646 635 625
Australia SampPASX 6917 207 38 6900 7150 USDSGD 132 131 128
200 USDKRW 109898 106000 101000
Switzerland SMI 10908 186 28 10950 11400 USDINR 7264 7270 7200
MSCI Emerging Mar- 190621 166 22 194000 207000 USDBRL 538 525 530 kets USDMXN 1994 2050 2150
Prices as of 1622021 Forecast as on 1122021 Gross return (incl dividends) Spot rates are as of 1722021 These forecasts are no reliable indicators of future performance Source Bloomberg These forecasts are no reliable indicators of future performance Source Bloomberg Datastream Credit SuisseIDC Credit SuisseIDC
Commodities Real GDP growth and inflation Spot 3M 12M GDP Inflation
Gold (USDoz) 1793 1900 2000 growth
Silver (USDoz) 273 27 30 in 2020 2021 2022 2020 2021 2022
Platinum (USDoz) 12624 1300 1250 CH -32 35 20 -07 03 02
Palladium (USDoz) 2390 2400 2500 EMU -72 50 42 03 06 10
Copper (USDton) 8416 8300 7900 USA -35 57 35 12 20 21
WTI Crude Oil (USDbbl) 600 60 60 UK -100 53 75 09 14 18
Bloomberg Commodity index 1815 181 186 Australia -20 35 32 08 15 15
Japan -49 17 19 -02 01 03
Spot rates are as of 1722021 forecast as on 1122021 China 23 71 52 25 11 17 These forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC Last forecast update 10022021
These forecasts are no reliable indicators of future performance Source Bloomberg Credit Suisse
(17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 18
Glossary
Risk warnings
Emerging markets Emerging markets are located in countries that possess one or more of the following characteristics a certain degree of political instability relatively unpredictable financial markets and economic growth patterns a financial market that is still at the development stage or a weak economy Emerging market investments usually result in higher risks as a result of political economic credit exchange rate market liquidity legal settlement market shareholder and creditor risks
Hedge funds Regardless of structure hedge funds are not limited to any particular investment discipline or trading strategy and seek to profit in all kinds of markets by using leverage derivative instruments and speculative investment strategies that may increase the risk of investment loss
Commodity investments Commodity transactions carry a high degree of risk and may not be suitable for many private investors The extent of loss due to market movements can be substantial or even result in a total loss
Real estate Investors in real estate are exposed to liquidity foreign currency and other risks including cyclical risk rental and local market risk as well as environmental risk and changes to the legal situation
Currency risks Investments in foreign currencies involve the additional risk that the foreign currency might lose value against the investorrsquos reference currency
Equity risk Equities are subject to market forces and hence fluctuations in value which are not entirely predictable
Market risk Financial markets rise and fall based on economic conditions inflationary pressures world news and business-specific reports While trends may be detected over time it can be difficult to predict the direction of the market and individual stocks This variability puts stock investments at risk of losing value
High Yield bond risk High Yield Bonds are typically rated below investment grade or are unrated and as such are often subject to a higher risk of issuer default
Perpetual Bond risk Perpetual Bonds have no maturity date and therefore the Interest pay-out depends on the viability of the issuer in the very long term
Subordinated Bond risk In case of liquidation of the issuer investors can only get back the principal after other senior creditors are paid
Risk of Bonds with variable deferral of interest terms Investors would face uncertainty over the amount and time of the interest payments to be received
Callable bond risk Investors face reinvestment risk when the issuer exercises its right to redeem the bond before it matures
Risk of Bonds with extendable maturity date Investors would not have a definite schedule of principal repayment
Convertible or exchangeable bond risk Investors are subject to both equity and bond investment risk
Cocos risk The bond may be written-off fully or partially or converted to common stock on the occurrence of a trigger event
Explanation of indices frequently used in reports
Index Comment
Australia SampPASX 200 SampPASX 200 is an Australian market-capitalization-weighted and float-adjusted stock index calculated by Standard and Poors
BC High Yield Corp USD The US Corporate High Yield Index measures USD-denominated non-investment grade fixed-rate and taxable corporate bonds The index is calculated by Barclays
BC High Yield Pan EUR The Euro Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate EUR The US Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate USD The IG Corporate Index tracks the fixed-rate investment-grade dollar-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
Canada SampPTSX comp The SampPTSX composite index is the Canadian equivalent of the SampP 500 Index in the USA The index contains the largest stocks traded on the Toronto Stock Exchange
Consumer Confidence Indices Consumer Confidence Indices (CCIs) are based on surveys of consumers spending intentions and economic situations as well as their concerns and expectations for the immediate future
CS Hedge Fund Index The Credit Suisse Hedge Fund Index is compiled by Credit Suisse Hedge Index LLC It is an asset-weighted hedge fund index and includes only funds as opposed to separate accounts The index reflects performance net of all hedge fund component performance fees and expenses
CS LSI ex govt CHF The Liquid Swiss Index ex govt CHF is a market-capitalized bond index representing the most liquid and tradable portion of the Swiss bond market excluding Swiss government bonds The index is calculated by Credit Suisse
DAX The German Stock Index stock represents 30 of the largest and most liquid German companies that trade on the Frankfurt Exchange
DXY A measure of the value of the US dollar relative to the majority of its most important trading partners The US Dollar Index is similar to other trade-weighted indices which also use the exchange rates from the same major currencies
Eurostoxx 50 Eurostoxx 50 is a market-capitalization-weighted stock index of 50 leading blue-chip companies in the Eurozone
FTSE EPRANAREIT Global Real Estate Index Series The FTSE EPRANAREIT Global Real Estate Index Series is designed to represent general trends in eligible real estate equities worldwide
Hedge Fund Barometer The Hedge Fund Barometer is a proprietary Credit Suisse scoring tool that measures market conditions for hedge fund strategies It comprises four components liquidity volatility systemic risks and business cycle
Japan Topix TOPIX also known as the Tokyo Stock Price Index tracks all large Japanese companies listed in the stock exchanges first section The index calculation excludes temporary issues and preferred stocks
JPM EM hard curr USD The Emerging Market Bond Index Plus tracks the total return of hard-currency sovereign bonds across the most liquid emerging markets The index encompasses US-denominated Brady bonds (dollar-denominated bonds issued by Latin American countries) loans and Eurobonds
JPM EM local curr hedg USD The JPMorgan Government Bond Index tracks local currency bonds issued by emerging market governments across the most accessible markets for international investors
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 19
MSCI AC AsiaPacific The MSCI All Country Asia Pacific Index captures large and mid cap representation across 5 developed market countries and 8 emerging markets countries in the Asia Pacific region With 1000 constituents the index covers approximately 85 of the free float-adjusted market capitalization in each country
MSCI AC World The MSCI All Country World Index captures large and mid cap representation across 23 developed markets and 23 emerging market countries With roughly 2480 constituents the index covers around 85 of the global investable equity opportunity set
MSCI Emerging Markets MSCI Emerging Markets is a free-float-weighted Index designed to measure equity market performance in global emerging markets The index is developed and calculated by Morgan Stanley Capital International
MSCI EMU The MSCI EMU Index (European Economic and Monetary Union) captures large and mid cap representation across the 10 Developed Markets countries in the EMU With 237 constituents the index covers approximately 85 of the free float-adjusted market capitalization of the EMU
MSCI Europe The MSCI Europe Index captures large and mid cap representation across 15 developed markets countries in Europe With 442 constituents the index covers approximately 85 of the free float-adjusted market capitalization across the European developed markets equity universe
MSCI UK The MSCI United Kingdom Index is designed to measure the performance of the large and mid cap segments of the UK market With 111 constituents the index covers approximately 85 of the free float-adjusted market capitalization in the UK
MSCI World MSCI World is an index of global equity markets developed and calculated by Morgan Stanley Capital International Calculations are based on closing prices with dividends reinvested
OECD Composite Leading Indicators OECD Composite Leading Indicators (CLIs) are designed to provide early signals of turning points in business cycles with components that measure early stages of production respond to changes in economic activity and are sensitive to expectations of future activity
Purchasing Managers Indices Purchasing Managers Indices (PMIs) are economic indicators derived from monthly surveys of private-sector companies The two principal producers of PMIs are Markit Group which conducts PMIs for over 30 countries worldwide and the Institute for Supply Management (ISM) which conducts PMIs for the United States The indices include additional sub-indices for manufac-turing surveys such as new orders employment exports stocks of raw materials and finished goods prices of inputs and finished goods and services
Russell 1000 Growth Index The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe based on 1000 large-cap companies with higher price-to-book ratios and higher forecast growth values
Russell 1000 Index The Russell 1000 Index is a stock market index that represents the highest-ranking 1000 stocks in the Russell 3000 Index (encompassing the 3000 largest US-traded stocks with the underlying companies all incorporated in the USA) and representing about 90 of the total market capitalization of that index The Russell 1000 Index has a weighted average market capitalization of USD 81 billion and the median market capitalization is approximately USD 46 billion
Russell 1000 Value Index The Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe based on 1000 large-cap companies with lower price-to-book ratios and lower expected growth values
Switzerland SMI The Swiss Market Index is made up of 20 of the largest companies listed of the Swiss Performance Index universe It represents 85 of the free-float capitalization of the Swiss equity market As a price index the SMI is not adjusted for dividends
UK FTSE 100 FTSE 100 is a market-capitalization-weighted stock index that represents 100 of the most highly capitalized companies traded on the London Stock exchange The equities have an investibility weighting in the index calculation
US SampP 500 Standard and Poors 500 is a capitalization-weighted stock index representing all major industries in the USA which measures the performance of the domestic economy through changes in the aggregate market value
Abbreviations frequently used in reports
Abb Description Abb Description
3612 MMA 3612 month moving average IMF International Monetary Fund
AI Alternative investments LatAm Latin America
APAC Asia Pacific Libor London interbank offered rate
bbl barrel m bd Million barrels per day
BI Bank Indonesia M1 A measure of the money supply that includes all physical money such as coins and currency as well as demand deposits checking accounts and negotiable order of withdrawal accounts
BoC Bank of Canada M2 A measure of money supply that includes cash and checking deposits (M1) as well as savings deposits money market mutual funds and other time deposits
BoE Bank of England M3 A measure of money supply that includes M2 as well as large time deposits institutional money market funds short-term re-purchase agreements and other larger liquid assets
BoJ Bank of Japan MampA Mergers and acquisitions
bp Basis points MAS Monetary Authority of Singapore
BRIC Brazil Russia China India MLP Master Limited Partnership
CAGR Compound annual growth rate MoM Month-on-month
CBOE Chicago Board Options Exchange MPC Monetary Policy Committee
CFO Cash from operations OAS Option-adjusted spread
CFROI Cash flow return on investment OECD Organisation for Economic Co-operation and Development
DCF Discounted cash flow OIS Overnight indexed swap
DM Developed Market OPEC Organization of Petroleum Exporting Countries
DMs Developed Markets PB Price-to-book value
EBITDA Earnings before interest taxes depreciation and amortization PE Price-earnings ratio
ECB European Central Bank PBoC Peoples Bank of China
EEMEA Eastern Europe Middle East and Africa PEG PE ratio divided by growth in EPS
EM Emerging Market PMI Purchasing Managers Index
EMEA Europe Middle East and Africa PPP Purchasing power parity
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 20
EMs Emerging Markets QE Quantitative easing
EMU European Monetary Union QoQ Quarter-on-quarter
EPS Earnings per share rhs right-hand side (for charts)
ETF Exchange traded funds RBA Reserve Bank of Australia
EV Enterprise value RBI Reserve Bank of India
FCF Free cash flow RBNZ Reserve Bank of New Zealand
Fed US Federal Reserve REIT Real estate investment trust
FFO Funds from operations ROE Return on equity
FOMC Federal Open Market Committee ROIC Return on invested capital
FX Foreign exchange RRR Reserve requirement ratio
G10 Group of Ten SAA Strategic asset allocation
G3 Group of Three SDR Special drawing rights
GDP Gross domestic product SNB Swiss National Bank
GPIF Government Pension Investment Fund TAA Tactical asset allocation
HC Hard currency TWI Trade-Weighted Index
HY High yield VIX Volatility Index
IBD Interest-bearing debt WTI West Texas Intermediate
IC Credit Suisse Investment Committee YoY Year-on-year
IG Investment grade YTD Year-to-date
ILB Inflation-linked bond Personal Consumption An indicator of the average increase in prices for all domestic Expenditure (PCE defla- personal consumption tor)
Currency codes frequently used in reports
Code Currency Code Currency
ARS Argentine peso KRW South Korean won
AUD Australian dollar MXN Mexican peso
BRL Brazilian real MYR Malaysian ringgit
CAD Canadian dollar NOK Norwegian krone
CHF Swiss franc NZD New Zealand dollar
CLP Chilean peso PEN Peruvian nuevo sol
CNY Chinese yuan PHP Philippine peso
COP Colombian peso PLN Polish złoty
CZK Czech koruna RUB Russian ruble
EUR Euro SEK Swedish kronakronor
GBP Pound sterling SGD Singapore dollar
HKD Hong Kong dollar THB Thai baht
HUF Hungarian forint TRY Turkish lira
IDR Indonesian rupiah TWD New Taiwan dollar
ILS Israeli new shekel USD United States dollar
INR Indian rupee ZAR South African rand
JPY Japanese yen
Important information on derivatives
Pricing Option premiums and prices mentioned are indicative only Option premiums and prices can be subject to very rapid changes The prices and premiums mentioned are as of the time indicated in the text and might have changed substantially in the meantime
Risks Derivatives are complex instruments and are intended for sale only to investors who are capable of understanding and assuming all the risks involved Investors must be aware that adding option positions to an existing portfolio may change the characteristics and behavior of that portfolio substantially A portfoliorsquos sensitivity to certain market moves can be heavily impacted by the leverage effect of options
Buying calls Investors who buy call options risk the loss of the entire premium paid if the underlying security trades below the strike price at expiration
Buying puts Investors who buy put options risk loss of the entire premium paid if the underlying security finishes above the strike price at expiration
Selling calls Investors who sell calls commit themselves to sell the underlying for the strike price even if the market price of the underlying is substantially higher Investors who sell covered calls (own the underlying security and sell a call) risk limiting their upside to the strike price plus the upfront premium received and may have their security called away if the security price exceeds the strike price of the short call Additionally the investor has full downside participation that is only partially offset by the premium received upfront If investors are forced to sell the underlying they might be subject to taxing Investors shorting naked calls (ie selling calls but without holding the underlying security) risk unlimited losses of security price less strike price
Selling puts Put sellers commit to buying the underlying security at the strike price in the event the security falls below the strike price The maximum loss is the full strike price less the premium received for selling the put
Buying call spreads Investors who buy call spreads (buy a call and sell a call with a higher strike) risk the loss of the entire premium paid if the underlying trades below the lower strike price at expiration The maximum gain from buying call spreads is the difference between the strike prices less the upfront premium paid
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 21
Selling naked call spreads Selling naked call spreads (sell a call and buy a farther out-of-the-money call with no underlying security position) Investors risk a maximum loss of the difference between the long call strike and the short call strike less the upfront premium taken in if the underlying security finishes above the long call strike at expiration The maximum gain is the upfront premium taken in if the security finishes below the short call strike at expiration
Buying put spreads Investors who buy put spreads (buy a put and sell a put with a lower strike price) also have a maximum loss of the upfront premium paid The maximum gain from buying put spreads is the difference between the strike prices less the upfront premium paid
Buying strangles Buying strangles (buy put and buy call) The maximum loss is the entire premium paid for both options if the underlying trades between the put strike and the call strike at expiration
Selling strangles or straddles Investors who are long a security and short a strangle or straddle risk capping their upside in the security to the strike price of the call that is sold plus the upfront premium received Additionally if the security trades below the strike price of the short put investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short put and will also experience losses in the security position if they owns shares The maximum potential loss is the full value of the strike price (less the value of the premium received) plus losses on the long security position Investors who are short naked strangles or straddles have unlimited potential loss since if the security trades above the call strike price investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short call In addition they are obligated to buy the security at the put strike price (less upfront premium received) if the security fin-ishes below the put strike price at expiration
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 22
Important information on mutual funds Fees and charges etc Different types of fees and commissions (subscription fee amount which must be retained in trust assets repurchase fee etc) are charged when investment trustsfunds are purchased and sold In addition apart from these fees and commissions trust and management fees and other fees (audit fee trust administrative charges carried interest etc) are charged and borne by you through your trust asset Fees and commissions borne by you will be a sum of these amounts Such fees and commissions vary depending on the investment trustfund and depending on the investment status and therefore we cannot provide specific amounts or calculation methods
For detailed information on fees and commissions etc of each re-spective investment trustfund please refer to the pre-contract documents (prospectus and other supplementary documents)
Important information on dividends bull Dividends are different to interest on deposits and are paid from the net asset value of investment trustsfunds Therefore when dividends are paid the base value (net asset value per unit) will decrease by an amount equivalent to the amount paid
bull Dividends may be paid exceeding the profit earned during the calculation period (trading profit including profits of dividends etc after expenses) In this case the base value (net asset value per unit) on the settlement date in this period will decrease compared to that on the settlement date in the previous period Also the level of dividends does not always reflect the rate of return for the investment trustfund during the calculation period
bull A part or all of dividends may be virtually equivalent to some repayment of the principal depending on the purchase price of the investment trustfund by an investor The same can be applied to a case that an increase in the base value (net asset value per unit) is smaller than a dividend amount due to the investment status after purchase of the investment trustfund
Please refer to the prospectus for details
Explanation of major risks (description pursuant to Ar-ticle 37 (Regulation on Advertising etc) of the Financial Instruments and Exchange Act etc) The risks described below are a summary of some general risks of investment trustsfunds (risks which have an impact on net asset value) and do not cover all risks Please refer to the pre-trade documents (prospectus and other supplementary documents)
Price volatility risk Investment trustsfunds invest mainly in equities bonds and derivative products etc The value of the investment trustfund will go up or down due to increases or decreases in the prices of such investments Further the value of such investments will be impacted by political and economic factors the financial standing of an issuer market demand and supply interest rates and other factors
Foreign currency risk Investment trustsfunds which invest in equities or bonds etc denominated in foreign currencies entail a foreign currency risk and the base value (or net asset value) of investment trustsfunds may change depending on the currency exchange rate Even when you do not experience a loss of invest-ment principal when calculated in the base currency you may suffer a loss at conversion into Japanese yen due to fluctuations in exchange rates Fur-thermore investment trustsfunds which utilize currency trading among multiple currencies may incur costs due to such currency trading depending on the difference in short-term interest rates between the currencies and you may suffer a loss
Credit risk For investment trustsfunds which invest in equities or bonds etc the prices of these investments may increase and decrease due to changes in the business or financial standing of the issuer and other factors and you may suffer a loss
Risk pertaining to liquidity Where there is sudden high volume in a particular investment or when sudden changes in the external environment surrounding markets triggers a sudden downturn in a market or period of market turmoil etc investments may not be flexibly traded In such a case a decline in the price of the investment may impact the base value (or net asset value) of the investment trust result-ing in a loss Further the management company may decide to stop calcu-lation of net asset prices or suspend sell or redemption claims
In addition for certain types of investment trustfund there is a risk that particular investments may be designated to a separate account (or side pocket) due to a lack of liquidity When a separate account is utilized by in-vestment trustsfunds restrictions may apply as to when such investments can be liquidated through a sell or redemption claim and there may be a re-striction in the timing or form of redemption claim permissible In particular for Fund of Fund investments when an investment trustfund makes an in-vestment without time limit in another fund the investment trustfund may be influenced by investment results in the other funds
Risk associated with an outflow of money received from sales orders When there is a large volume of sale orders in a short period of time the investment trustfund may be forced to sell structured securities at a lower rate than the prevailing market price to refund monies to investors and as a result you may suffer a loss Also alternative investment trustsfunds gen-erally have a limitation in selling or cashing out the investment compared to traditional investment trustsfunds Many alternative investment trustsfunds only accept a sell or redemption order on a monthly or quarterly basis and therefore you may not be able to rapidly exit the investment in for example times of economic uncertainty
Redemption risk Investment trustsfunds may become subject to mandatory redemption due to a certain reason For details please refer to the pre-trade documents (prospectus and other supplementary documents) before subscription
Concentration risk Investment trustsfunds which invest in a certain investment product or similar investment product group may significantly decrease in value (net asset value) under severe market circumstances
Country risk When changes in political economic and social conditions in investment destination countries and regions cause a dislocation in financial and security markets security prices may significantly change Also investments in emerging markets involve unique risks including small market size and trade volume political and social uncertainties undeveloped market infrastructure such as a clearing system undeveloped information disclosure system and legal system by supervising authorities large fluctuations in exchange rates restrictions on currency remittance to foreign countries and other factors and therefore may have larger price fluctuations compared to investments in major developed markets
Important information on non-Japanese stocks Please refer to the issuer information when you purchase non-Japanese stocks
Disclaimer This material is published solely for information purposes and is intended for the recipientrsquos sole use Credit Suisse does not represent or warrant its ac-curacy or completeness The material is not directly or indirectly intended for any investment solicitation and does not constitute an invitation or offer to conclude a transaction contract for financial instruments etc Credit Suisse accepts no liability for loss arising from the use of the information in this material It is recommended that you consult with the third party professional advisors as to legal or tax issues etc This material should not be reproduced or quoted without the prior express written consent of Credit Suisse The information and opinions expressed in this material were produced by Private Banking Division at Credit Suisse as of the date of writing and are subject to change without notice Views expressed in respect of particular investment products in this material may be different from or inconsistent with the ob-
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 23
servations and views of other divisions besides Private Banking due to the differences in evaluation criteria This material is solely distributed in Japan by Credit Suisse Securities (Japan) Limited Credit Suisse Securities (Japan) Limited will not distribute or forward it outside Japan
You may incur a loss as a result of fluctuations in stock prices if you invest in stocks In relation to foreign stocks you may incur a loss in such stocks due to foreign exchange rate fluctuations etc The market value of bonds is affected by interest rate fluctuations or changes in the financial standing of any issuer etc as such you may incur a loss if you sell such bonds before they are redeemed In relation to foreign bonds you may incur a loss in such bonds due to foreign exchange rate fluctuations etc The net asset value of mutual funds can fall as well as rise due to price changes of underlying stocks bonds etc and foreign exchange rate fluctuations and this may cause you to incur a loss
Structured securities and derivatives are complex instruments 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 of any structured security or transaction may be affected by changes in financial market conditions reference indices volatility and the credit quality of any issuer or reference issuer
Furthermore there are structured securities on which you may incur a loss since the redemption amounts are linked with fluctuations in reference indices etc There are also derivatives on which potential losses may exceed the amount of the initial investment Commission rates for any transactions will be as per the rates agreed between Credit Suisse and you For transactions conducted on a principal to principal basis between Credit Suisse and you the purchase or sale price will be the total consideration Transactions con-
ducted on a principal to principal basis including over the counter derivatives transactions will be quoted as a purchasebid price or selloffer price and for which a difference or spread may exist Charges in relation to transactions will be agreed prior to dealing as per our requirements under the Financial Instruments and Exchange Law
By purchasing financial instruments etc you may incur a loss or a loss in excess of the principal as a result of fluctuations in market prices or other financial indices etc Please read carefully the Pre-Contract Documentation provided for an explanation of associated risks and commissions etc of individual financial instruments etc prior to purchase Please contact your Relationship Manager if you have any questions
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Credit Suisse Securities (Japan) Limited Financial Instruments Dealer Di-rector-General of Kanto Local Finance Bureau (Kinsho) No 66 a member of Japan Securities Dealers Association Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association
Copyright copy 2021 Credit Suisse Group AG andor its affiliates All rights reserved
21C013A_IS_J
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 24
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Publisher Credit Suisse Private Banking amp Wealth Management Investment Solutions amp Products
Information about other Investment Solutions amp Products publications Internet httpsinvestmentcredit-suissecom
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Subscription (clients) Please contact your customer advisor to subscribe to this publication
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Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 25
Editorial
Michael Strobaek Global Chief Investment Officer
Burkhard Varnholt Chief Investment Officer ndash Swiss Univer-sal Bank
Progress on the COVID-19 front has been slow and bumpy with many Western economies still stuck in more or less stringent lockdowns Indeed we expect the ongoing restric-tions to lead to a soft patch in economic activity this quarter However as vaccine rollouts accelerate and infection rates decline meaningfully while strong fiscal and monetary policy support remains in place the second half should see strong economic growth This should further support cyclical assets
In the most recent meeting of our Investment Committee we therefore decided to retain our preference for equities partic-ularly emerging market equities and commodities We expect these asset classes to benefit from the eventual strong eco-nomic pick-up and central banksrsquo continued commitment to keep financial conditions easy Yet even if central banks keep short-term interest rates unchanged increasing growth momentum suggests that yields on government bonds will continue to rise As credit spreads are now close to post-fi-nancial crisis lows rising yields on benchmark bonds will hurt returns in credit We therefore lower our return outlook for developed market investment grade bonds from attractive to neutral and we take profit on our successful overweight allo-cation to emerging market hard currency sovereign bonds In addition we still favor cyclical and especially commodity currencies and believe that the USD will weaken further
On a more long-term note it is tangible that investors are in-creasingly mindful of environmental social and governance (ESG) criteria In the pages ahead we present our ldquoESG in-tegratedrdquo framework designed to help investors gradually transition to portfolios that perform solidly on both traditional financial performance metrics and ESG metrics
Enjoy the read
In this issue
Japan investment strategy 3 Pandemic shock Catalyst for long-term change
Japan asset allocation 6 Review of our portfolio allocations
Supertrends 7 Supertrends Investment solutions
Economics 9 Positive growth outlook beyond winter soft patch
Global investment strategy 10 Retain preference for EM equities
Special topic 11 ESG Integrated
Special topic 13 Bullish hopes in Chinarsquos Year of the Ox
Fixed income 14 EM HC corporate bonds preferred
Equities 15 Remain constructive on global equities
Alternative investments 16 Still positive on commodities
Foreign exchange 17 Keep favoring cyclical currencies
Forecasts 18 At a glance
Editorial deadline 17 February 2021
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 2
Japan investment strategy
Pandemic shock Catalyst forlong-term change The COVID-19 pandemic may accelerate structural change in society and economy
Policymakers will seek to create a pandemic-resistant society and economy
Soichiro Matsumoto Chief Investment Officer Japan
Lockdown policies constitute a deflationary shock Globally lockdowns have been implemented on a wide scale to control the spread of COVID-19 infection This has led to a rapid contraction in demand and a downturn in the economy which has produced a deflationary shock to the global econ-omy To cope with this severe shock governments have launched counter-deflationary measures (reflationary policies) such as monetary easing and fiscal stimulus programs As the COVID-19 pandemic spreads and remains stubbornly resilient these counter-deflationary measures will need to be prolonged
In Europe and the USA the start of vaccination efforts has slowed down the spread of the disease In addition economic activity has recovered quickly in China and other Asian coun-tries due to their success in achieving early infection control The global economy has begun to recover backed by aggres-sive policy support The recovery is gaining momentum as investors are turning their attention toward equities (especially economically sensitive stocks) and commodities which benefit significantly from reflationary policies
A spike inflation can be a tail risk There is much to learn from Japanrsquos previous experience re-garding risks of taking only small steps to counter deflation In contrast the unprecedented scale of the measures currently being taken could lead to a potential ldquooverkillrdquo In particular the large fiscal spending plan currently being mooted in the USA will likely prompt caution about the tail risk of a sharp rise in long-term interest rates on account of a potential unanticipated spike in inflation
This means not only that bond prices will fall and support for current equity valuations will recede but also that there is a greater risk of fiscal pressure from significantly higher interest payments on public debt However the supply-demand gap in major countries is currently wide and we believe such concerns should be consigned to tail risk management
Post-pandemic social and economic changes will continue to accelerate Once the pandemic winds down the worldrsquos social and eco-nomic landscape is unlikely to return to the pre-pandemic ldquonormalrdquo Even if the COVID-19 outbreak is contained the risk of a new pandemic will always persist On the other hand it will be quite difficult to continue with the large-scale mone-tary easing and fiscal spending measures
Therefore the world will need to adjust socially and econom-ically such that it becomes more resistant to future pandemics As was the case when our global society and economy under-went major changes with the advent of the Internet those societies and economies that are able to adapt quickly will come out on top
Supply chain restructuring Due in part to the uncertainty and confusion surrounding the response to the COIVD-19 pandemic the West plus Japan seems to be growing increasingly wary of China In terms of geopolitical risk as the confrontation between the USA and China intensifies the major economies will each seek to in-creasingly rely on domestic supply chains
The global supply chain will likely undergo rapid restructuring especially in areas relating to technology such as cutting-edge semiconductors These are becoming increasingly im-portant not only for economic growth but also for national security Additionally there will be a need to rebuild procure-ment systems for critical medicines and medical supplies which were disrupted by the pandemic
In the past supply chain management has focused primarily on economic benefits but now the emphasis will be on supply chain resilience and independence This will add to cost pressure for companies but we also expect to see benefits due to increased new investment
Supertrends Increasing momentum for change The changes currently accelerating in the wake of the pan-demic will drive long-term structural changes which we have previously covered in our Supertrends reports The widespread adoption of remote work represents a new trend and will constitute a major driver of social and economic digitalization
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 3
Excessive urbanization which has contributed to the spread of infection will stall and this will provide an opportunity to rebuild urban infrastructure
Efforts to reduce socioeconomic disparities are also likely to gain momentum These efforts represent just the start of a push to prevent societies and economies from fragmenting in the face of a pandemic
ESG investment Growing interest in a sustainable so-ciety After the 2008 Global Financial Crisis the world became more aware of the pitfalls of short-term profit-seeking As a result many pension funds and investment institutions have become more supportive of the Principles for Responsible Investment (PRI) as promulgated by the United Nations There is now greater focus on working toward realizing a sustainable society which has led to changes in corporate behavior like improved governance As politicians are also aggressively moving toward measures to promote a sustain-able society a slew of new regulations relating to environmen-tal social and governance (ESG) have been introduced As a result ESG investment is gaining attention as a long-term investment theme and increasingly influencing stock prices
Increasing equity investment Bond investment returns have declined in the current pro-longed low interest rate environment On the other hand the amount of available investible funds is likely to increase due to the easy monetary policy while demand (for bonds) from pension funds is likely to trend higher on account of growing liabilities as the population ages
Long-term changes in global social and economic structures provide investment opportunities in various markets and businesses This will lead to a rise in investor allocations to related stocks and alternative investments
Focus shifts to corporate bonds As returns on government bond and other safe bond invest-ments have decreased considerably in this low interest rate environment investors have moved to more credit-related instruments However the interest rate spread on credit is shrinking gradually Therefore as part of our updated perspec-tive we are focusing on corporate bonds that are denominated in major currencies and are issued by emerging market (EM) companies EM companies are also expanding the scale of their operations and many have stable cash flow The high growth potential of Asian companies makes them an attractive investment target for investors seeking yield
Recommended investment strategies
Investors have learnt an important lesson from the unprece-dented pandemic They are now accustomed to the ldquoGreat Moderationrdquo and conscious of hedging their risks We believe the market has rediscovered the significance of global asset diversification as part of a strong long-term investment strat-egy
Strategies related to prolonged policy support mea-sures With ultra-loose monetary policy likely to be in place for an extended period investors should look to alternative strategies designed to increase yield Every investor will have a greater need to look for investments that convert an acceptable level of risk into yield This includes range-trading in currency markets where interest rate differentials are narrowing and the risk of large fluctuations is receding
Stocks that fit in with long-term themes that are expected to benefit from the transition to a new economic system post-COVID-19 continue toremain attractive Gold is also likely to continue to attract attention as a risk hedge
Strategies for the onset of the economic recovery As the economy recovers while interest rates remain low in-vestment in credit (corporate bonds) will become attractive In particular Asian countries that have been successful in controlling the spread of infection and dollar-denominated bonds issued by companies in this region may constitute an effective strategy for seeking yield
The economic recovery and changing consumption styles are likely to increase investor interest in economically sensitive value stocks as well as stocks of companies that fit in with new market landscape As companies become more aggres-sive in mergers amp acquisitions (MampA) and other investments to reform their business structure private equity too can be an interesting investment option
Accelerating changes related to the pandemic Investment opportunities provided by receding globalism Political commitments designed to deal with Japanrsquos social fragmentation are expected to provide long-term invest-ment opportunities We now focus on strategies including infrastructure investment funds private equity and the long-term themes discussed in a Supertrends series report
Investment lesson ndash increased awareness of risk hedging A growing awareness of the importance of risk prepared-ness is expected to lead to greater global asset diversifica-tion as part of a long-term investment strategy This is because such a strategy can be expected to effectively stabilize returns without incurring a high additional cost
Investment themes related to the advent of a new digital society The pandemic has changed the way people inter-act with each other on a socioeconomic level considerably This has accelerated the rate of digitalization across the economy Our Supertrends series reports explore a number of related investment themes and strategies
Investment opportunities related to full-scale efforts to improve sustainability The world as a whole is now more amenable to accepting the costs of improving sustainability One of the best examples is efforts to create a carbon-free society The adoption of investment metrics that incor-porate an awareness of ESG will also increase Additionally our Supertrend ldquoClimate changerdquo encompasses pertinent investment ideas
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 4
Reaffirming the appeal of Supertrends Examining tail risk Uncontrollable inflation and rising After the pandemic our society is changing at an accelerating pace Our long-term investment themes called Supertrends can be a suitable option for the prudent investor in such times
interest rates In response to the pandemic global debt has ballooned to unprecedented levels Thanks to historically low interest rates the burden of this debt is sustainable However investors should be aware of related risks Uncontrolled inflation and a sharp rise in interest rates may continue to be a tail risk for the market (17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 5
Japan asset allocation
Review of our portfolio allocations The annual review of our Strategic Asset Allocation leads us to reduce our allocation to bonds in portfolios and increase allocations to equities and alternative investments
Soichiro Matsumoto Investment map (regions vs asset classes) Chief Investment Officer Japan
Annual review of our Strategic Asset Allocation Every year Credit Suisse updates its macro market forecasts (risk and return potential) for the next five years and publishes these forecasts in the form of our Capital Market Assumptions (CMA) Based on the new CMA we have review and update our our medium-term asset allocation benchmarks also known as our Strategic Asset Allocation (SAA)
For our 2021 SAA the allocation to bonds has decreased due to lower expected returns while our allocations to equities and alternative investments have increased Source Credit Suisse
(16022021)
JPY international tactical asset allocation (TAA balanced) Balanced TAA Vs benchmark Benchmark SAA 2021
January February Change January February
Liquidity 20 40 20 -30 -10 50
JPY 20 40 20 -30 -10 50
Fixed income 465 315 -150 -10 -10 325
JPY 25 35 10 -15 -05 40
Global corporates 330 180 -150 -15 -15 195
Global high yield 30 30 00 00 00 30
Emerging markets bond USD 40 30 -10 10 00 30
Emerging markets USD corporate 00 40 40 NA 10 30
Equity Emerging markets bond LC 40
445 00 520
-40 75
10 20
NA 20
00 500
Japan 155 180 25 -10 -10 190
World (ex Japan) 290 340 50 30 30 310
Switzerland 05 05 00 00 00 05
Eurozone 25 25 00 00 00 25
North America 125 150 25 00 00 150
United Kingdom 20 20 00 10 10 10
Australia 05 05 00 00 00 05
Emerging markets 50 60 10 20 20 40
LatAm 00 00 00 00 -05 05
APAC 45 50 05 20 20 30
EMEA 05 05 00 00 00 05
Supertrends 60 75 15 00 00 75 Alternative investments 70 125 55 20 00 125
Real estate Japan 25 25 00 00 00 25
Hedge fund 00 25 25 NA 00 25
Private equity 00 75 75 NA 00 75
Commodities 45 00 -45 20 NA 00 Total 1000 1000 00 00 00 1000
Source Credit Suisse
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 6
Supertrends
Supertrends Investmentsolutions In this installment we focus on the ldquoClimate changerdquo Supetrend and suggest investment solutions from sectors that can contribute significantly to reducing greenhouse gas emissions as well as mitigating long-term impacts of global warming
Maki Shimizu Investment Strategist - Japan Strategy
Policy tailwinds The ldquoClimate changerdquo theme is strongly influenced by policy factors hence we expect the recent change of government in the USA to lead to renewed interest in environmental policy issues On his first day in office last month US President Joe Biden announced his countryrsquos return to the Paris Agreement ndash an international framework for combating global warming ndash and began to shift policy course from the previous adminis-tration On environmental issues it may be difficult to reverse the international communityrsquos distrust and skepticism of the USA brought about by the ldquoAmerica Firstrdquo approach of the past four years However shifting to renewable energy sources is one of the major policy targets of President Biden and international cooperation on this issue will likely be gen-uinely welcomed
Currently countries that have ratified the Paris Agreement are struggling to meet their targets for reducing emissions by 2050 As policy support increases business opportunities related to environmental policy are likely to expand at the private sector level Here we focus on sectors that fall under this Supertrend because of their ability to contribute signifi-cantly to reducing greenhouse gas emissions and mitigating long-term impacts of global warming
Investment solution features A common catchphrase for all four sub-themes associated with this Supertrend is ldquosustainable energy supplyrdquo With the Paris Agreementrsquos goal of ldquocarbon neutralityrdquo in mind we look for investment opportunities arising out of a structural transformation in the energy sector via carbon-free electricity sustainable transportation pioneering oil and gas energy conversion and agriculture and food sub-themes We high-light climate change-related companies that primarily develop renewable energy and provide energy storage technologies
Besides companies that are likely to see continued growth via the long-term shift in energy policy we highlight others that are likely to reform the agriculture sector by incorporating automation in their production processes Additionally we highlight related entries from our environmental social and
governance (ESG) related stock list (ESG Top 25) that were discussed in the recent Supetrends report In mutual funds in addition to the Global Security Fund we offer solutions that enable investment in areas related to rising climate change awareness from an ESG perspective
(17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 7
Supertrends
Theme Detail Recommended solution
Anxious societies ndash Inclusive capitalism
AM One Global Security Stock Fund CS Beneficiaries of Anxious Societies Selection
Affordability Basis goods such as housing healthcare and pension have become unaffordable for many people
Employment Skilling reskilling and upskilling are crucial steps as technical progress radically changes required skill set
Personal security Everyday challenges such as the pandemic outbreak or cybersecurity are the most important pain points for people
Infrastructure ndash Closing the Global Core Infrastructure Stock gap Fund CS Infrastructure List
Transport Developed markets have to invest in project replacements while emerging markets continue to spend on growth
Energy amp water Energy transition toward renewables to limit global carbon emission Middle East faces an acute water shortage
Smart cities As 68 of the worldrsquos population will live in urban areas by 2050 cities must become smarter to handle this strong growth
Telecom infrastructure As 5G will be the next major investment cycle for the mobile industry mobile traffic may grow almost five-fold
Technology at the service of AM One Global Security Stock humans Fund CS Technology Selection
Digitalization The number of connected devices is surging and thus edge computing is expected to gain traction in order to capture even more value from data
Virtual reality Growing to the size of todayrsquos smartphone market in the years ahead
Artificial intelligence (AI) Material growth potential for home industries and cities digitalization and healthtech and fintech markets
Industry 40 Robots and automation are entering various non-industry sectors demand for industry robots is rising
Healthtech Digitalization solution biotechnology and AI in product development and healthcare research Silver economy ndash Investing for Select Sector SPDR ETFs (Health-population aging care Consumer Staples Consumer
Discretionary) CS Silver Economy Stocks
Therapeutics amp devices Biopharma and medical device companies to innovate around senior conditions such as heart disease amp cancer
Care amp facilities Managed care organizations hospitals and dedicated facilities to face increasing demand
Health amp life insurance Private pension gap in emerging markets and growing importance of private pension fund amp insurance solutions
Senior consumer choices High spending power of seniors to benefit consumer companies with senior-centric offerings Millennials values AM One Global Security Fund CS
Millennials Favorites
Sustainable business and invest- ESG overlay across the entire millennials stock universe to underpin the importance of sustainability ments
Digital natives Being connected 247 having a strong preference for technology brands driving an education technology revolution
Fun health amp leisure A new way of living and spending with substantial growth potential in emerging markets Climate change AM One Global Security Fund CS
Climate Change Choice ESG Top 25 promotion list
Carbon-free electricity CO2-neutral electricity production and the replacement of coal-fired electricity as a key component of CO2 reduction
Oil amp gas transition pioneers Demand for fossil fuel remains high for now while the transition pioneers will be leading the sector
Sustainable transport Sustainable fuels a switch to electric vehicles more efficient engines and railroads will reduce greenhouse gas (GHG) emissions
Agriculture amp food A growing population and a high CO2 emission from the agriculture sector require efficiency gains
Source Credit Suisse
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 8
Economics
Positive growth outlook beyondwinter soft patch After a likely soft patch in the winter months we expect very strong growth this year
The main risk to our near-term forecast is new virus strains that may necessitate further shutdowns
James P Sweeney Chief Economist and Regional CIO Americas
Peter James Foley Economist
Global growth rebounded strongly in the second half of 2020 We expect a winter soft patch most noticeable in Europe as viral contagion leads to mobility restrictions that hamper service sector activity Beyond that the growth outlook is very positive
Global demand has recently been propped up by developed market households Real retail sales in developed economies have exceeded pre-pandemic levels since September and are now above the long-term trend Business investment has risen too but not as much as consumption The onus is on business investment to drive the recovery further
A dominant feature of the pandemic economy has been the contrast between goods demand which has recovered sharply and services demand which has suffered due to social distancing The divergence is likely to unwind this year as spending that was redirected to goods in 2020 returns to services in 2021 Services consumption in developed market economies is about twice as large as goods consumption and is likely to increase strongly this year as vaccine rollouts support an expansion of activity
In that sense consumer spending on services might substitute some goods spending But at the same time a resurgent service sector may give further tailwinds to the goods sector through business spending
Uncertainties about variants vaccines and stimulus COVID-19 infections are falling in Europe and the USA But new highly contagious strains risk new or extended shut-downs which are the main downside risk to our near-term forecast
Vaccine rollout has not been smooth but the USA and UK will likely vaccinate a sufficient share of their populations by this summer that a strong services recovery is likely Europe and other major economies lag behind which may mean longer restrictions on activity Normalization appears to be out of reach before Q3 in large economies but vaccinations will support increased mobility
The USA is likely to pass another pandemic stimulus bill soon It will likely cost at least half the USD 19 tn price tag of the original plan but even this reduced size will substantially affect the US growth outlook Direct checks to households will im-mediately boost consumer spending and increase household savings further
There is less uncertainty over Eurozone policy support but it may not be forceful enough Europersquos fiscal policy so far has focused on mitigation rather than stimulation But this means that as the economy recovers fiscal support will fade meaning limited upside to growth The European Central Bank has stated it can ease policy further but it is unclear whether this will boost lending in the real economy
Last yearrsquos contraction in the Eurozone was larger than in the USA But the rebound is likely to be weaker We expect Eu-rozone GDP to grow 50 in 2021 while US GDP should grow 57 (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 9
Global investment strategy
Retain preference for EM equities Continued fiscal and monetary policy support and an easing of the pandemic should help Western economies see strong growth in the second half of the year
We retain a cyclical tilt in portfolio allocations through overweight positions in equities with a preference for EM equities and commodities
Philipp Lisibach Chief Global Strategist
The Credit Suisse Investment Committee (IC) has reduced emerging market hard currency (EM HC) sovereign bonds to strategic allocations and changed the return outlook for devel-oped market investment grade (IG) bonds from attractive to neutral Equity allocations are kept at overweight with a continued preference for emerging markets The BCOM also remains at overweight
Reflation expected to support cyclical assets Even though the pandemic continues to weigh on economic activity falling infection rates and hospitalizations alongside vaccine rollouts should allow economies to reopen In combi-nation with continued fiscal and monetary policy support Western economies are likely to see exceptionally strong growth in the second half of 2021 The USA is currently benefiting from a second relief package which is likely to be followed by a third one soon adding fuel to the expected concerted recovery
As such the IC keeps a cyclical bias in portfolio allocations expressed by overweights in equities and the broad commod-ity index (BCOM) In equities we continue to express a pref-erence for emerging markets specifically Chinese equities which show strong price momentum having outperformed global equities since the start of the year Although China has initiated policy-tightening measures we think it will take these steps in a controlled manner without risking denting market sentiment
Risk of inflation scare mitigated by central bank com-mitments Besides the risk that new virus strains with potential resistance to vaccines may fuel market concerns markets could start consolidating in coming months should a rise in US inflation
due to base effects lead to an inflation scare Although we think that such an inflation increase will be temporary uncer-tainty about the outlook for the second half is elevated due to the expected strong growth and likely supply-side bottle-necks as economies reopen To mitigate this risk the contin-ued commitment by central banks above all the US Federal Reserve (Fed) to keep financial conditions easy will be key Recent comments by Fed Chair Powell stressing patience and suggesting that the economy is far from overheating give us confidence that this key market support will stay in place For real assets such as equities and commodities this should continue to prove beneficial
Tight credit spreads Although the anchoring of treasury yields for shorter maturities via central banksrsquo rate guidance should prevent a sudden surge in longer-dated yields we expect them to grind higher as growth momentum builds Thus performance is expected to continue to suffer and the IC is keeping government bonds at underweight Due to tight IG credit spreads the IC has reduced the return outlook for IG from attractive to neutral For EM HC sovereign bonds we take profit on our successful overweight and cut portfolio allocations back to strategic levels as spreads have eroded Investors should find more value in EM HC corporate as well as selected EM local sovereign bonds Despite some USD consolidation at the start of this year the USD is likely to continue its weakening trend against other major currencies in coming months
Watch a video featuring the highlights of the Credit Suisse investment strategy wwwcredit-suissecomciofilm
(15022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 10
Special topic
ESG Integrated Investing according to environmental social and governance (ESG) criteria is in the process of becoming mainstream
Combining the House View with ESG convictions ldquoESG Integratedrdquo is a set of best ideas for investors to gradually transition to multi-asset portfolios that perform solidly both on traditional financial performance metrics and on ESG metrics ldquoESG Integratedrdquo is part of our Signature Convictions
Nannette Hechler-Faydherbe Chief Investment Officer ndash International Wealth Management
Jessie Gisiger Head of Credit Strategy and Investment Themes
Green transitions are at the heart of the fiscal spending and recovery plans put in place in response to the COVID-19 pandemic Against this backdrop strong regulatory momen-tum and fiscal ambitions in the USA Europe and China have only added to a global trend toward integrating ESG criteria at every level of economic activity
There is growing evidence that adhering to ESG criteria not only helps to mitigate our impact on climate change but also supports financial risk-reward for several reasons First be-sides increasing transparency and awareness ESG filters help keep in check the risk of heightened regulatory scrutiny that non-ESG-compliant business practices increasingly face Second ESG factors can impact financial business conditions such as the incurred cost of capital Focusing on good gover-nance and keeping an eye on regulatory risk are equally likely to be beneficial when considering default risk in the corporate bond market Third there are strong investment themes emerging from the policy support currently developing espe-cially in climate change to achieve net-zero carbon emissions by 2050
Signature Convictions ESG Integrated Combining key elements of the Credit Suisse House View with thematic priorities in ESG investing that emerge from these catalysts we have developed a set of best ideas (see table) that can help investors gradually transition their invest-ments toward multi-asset portfolios that perform solidly on both traditional financial performance metrics as well as ESG metrics
In fixed income ESG emerging market corporate bonds and ESG subordinated bonds offer investors an avenue to earn a yield pick-up but at a lower risk of credit spread widening than the broader index Empirical assessments have also shown that companies with higher ESG scores tend to have a lower probability of default Investors looking for an equiva-lent to money-market instruments may consider impact invest-ments which deliver low single-digit returns with limited vola-tility
In equities we highlight the Supertrends climate change and sustainable infrastructure as two key ESG-related themes that are focused on decarbonizing economic activity and are catalyzed by global regulatory momentum For investors looking for single-stock investments our Credit Suisse ESG Top 25 list includes stocks from our high conviction list that are in category 3 (ldquoESG awarerdquo) or category 4 (ldquoThematicrdquo) of our Credit Suisse ESG classification framework
Investors who would like to invest according to our preference for EM equities also have the option of doing so in an ESG-compliant manner through the MSCI Emerging Markets ESG Leaders Index That index has on average outperformed the MSCI Emerging Markets Index since 2008 This outperfor-mance can be explained by the MSCI Emerging Markets ESG Leaders Indexrsquos higher exposure to growth sectors and strong orientation to new economy sectors that benefit from powerful structural growth drivers Separately green real estate is likely to lead to higher occupancy rates and a lower probabil-ity of income loss resulting in a more stable income stream
For investors looking to alternative investments for further diversification impact private equity sustainable alpha hedge fund and carbon emission allowance futures are also interest-ing
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 11
Signature Convictions ESG Integrated
Source Credit Suisse
(16022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 12
Special topic
Bullish hopes in Chinarsquos Year ofthe Ox Our positive view on equities remains in place We express it through a preference for emerging market particularly Chinese equities
After strong gains so far this year we challenge the quality and longevity of Chinarsquos bull market and explain why we remain optimistic
John William Huia Woods CIO APAC
Just ahead of Chinese New Year Chinarsquos benchmark Shanghai Composite Index surged to new highs for the year Chinarsquos strong market gains are fueled by a rush of excess liquidity the likes of which we have not seen since 2015 But experienced investors will know that a rising tide can just as easily ndash and quickly ndash turn into an ebbing tide particularly when fundamentals become unsupportive
Red flags In fact red flags are not hard to find Possibly the most im-portant observation is that Chinarsquos growth momentum has passed its peak and will likely decelerate into 2021 A decel-erating economy does not necessarily hurt a bull market but it does not necessarily help it either
Equally important is the view that Chinarsquos ndash increasingly less dovish ndash authorities are unlikely to further stimulate the economy It has been widely observed that they remain vigilant and concerned toward the possible formation of price bubbles in real and financial assets including equity markets
Indeed the Peoplersquos Bank of Chinarsquos willingness in late January 2021 to withdraw rather than add CNY 570 bn of liquidity from interbank markets ahead of the Chinese New Year suggests that a clear inflection point has been reached with monetary policy now normalizing after two years of stimulus and easy money
Amid decelerating economic growth corporate revenues are under pressure meaning analyst earnings revisions are flat-lining and thus failing to keep pace with more vibrant emerging andor developing markets In absolute terms weaker earn-ings exert upward pressure on valuations Yet a liquidity-driven rally can still push valuations higher
Imbalance The liquidity-centric imbalance at the heart of Chinarsquos bull market leaves it exposed and vulnerable to correction in our opinion An environment of tightening monetary policy decel-erating growth and stretched valuations are generally not conducive to sustained price appreciation In fact in Chinarsquos case incrementally greater inflows of liquidity will be required to sustain existing price levels At least from an onshore per-spective the music will stop
Intriguingly attention is now turning to foreign investor inflows which hitherto have been muted But there are reasons why a rebound in sentiment might be expected including improving geopolitical sentiment with the new administration in the USA and expectation of CNY appreciation which should boost returns for USD investors Overall a reacceleration in flows could be a key factor in keeping Chinese markets supported
Sound diversification is key On balance at least for the next few months we remain overweight Chinese equities in a portfolio context Our funda-mental concerns are medium-term in nature while near-term risks ndash supported by liquidity ndash are tilted toward further price gains In line with our House View we emphasize the value of well-diversified exposure to EM equities overall
(15022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 13
Fixed income
EM HC corporate bonds preferred The ongoing reflationary path is going to support long-dated yields warranting a con-tinued cautious stance on government bonds
We reduce our allocation to EM HC sovereign bonds to benchmark weight We no longer see IG credit as attractive and prefer EM HC corporate bonds
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
Global benchmark yields have continued to trend higher in the last few weeks supported by reflationary expectations Despite the marketsrsquo repricing of more US fiscal stimulus the Federal Reserve (Fed) kept control of front-end rates expectations with the US yield curve further steepening as a result Going forward long-dated inflation expectations are still expected to be the main driver of nominal benchmark yields Both should moderately rise in tandem particularly in the USA With other developed regions following the same reflationary theme albeit with a lag we anticipate that global government bonds will remain an unattractive investment We therefore keep exposure below benchmark allocations in portfolios Furthermore we keep a relatively short duration stance in US Eurozone and Swiss bond markets and prefer US inflation-linked bonds over comparable nominal govern-ment bonds
IG credit no longer attractive prefer EM HC corporate bonds We no longer think that global investment grade (IG) credit offers attractive return potential While monetary policy re-mains supportive IG spreads are already at historical lows and no longer offer enough compensation against the further rise in benchmark yields we expect Global high yield (HY) credit market returns should remain attractive thanks to policy support and the economic recovery we project However we
see limited further spread compression potential in US HY and European HY from the current historical lows We believe emerging market hard currency (EM HC) corporate bonds are most attractive within credit with pro-cyclical emerging markets benefiting from the global growth rebound expected this year At the same time and due to their comparatively low benchmark duration EM HC corporate bonds are less sensitive to higher US government yields than global IG EM HC corporates on average provide similar credit fundamentals to developed market credit but offer more attractive spreads amid the current reflationary environment Also we see more opportunities in EM HC HY corporates particularly in Asia where spreads offer a premium of around 200 bp over US HY
EM HC sovereigns reduced to benchmark allocation EM HC sovereign bond valuations are currently tight with spreads not far off the lows reached after the great financial crisis Inflation has largely bottomed out due to base effects food and energy prices and there is limited scope for further monetary stimulus EM HC sovereign bond spreads have a high correlation with US Treasury yields With the latter still on the rise risks to EM HC sovereign bonds are increasing Positioning is at record highs and flows continue to acceler-ate This suggests that a further strong performance is less likely Given these considerations we have decided to reduce EM HC sovereign bonds to benchmark allocation in our portfolios (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 14
Equities
Remain constructive on globalequities We maintain our attractive return outlook for global equities with a preference for emerging markets UK Germany financials materials and health care
After a double-digit earnings decline in 2020 global earnings are set to recover sharply this year
Marc Haumlfliger Global Equity Strategist
We maintain our attractive return outlook for global equities on the back of supportive monetary conditions vaccine roll-outs growing stimulus prospects and our constructive outlook for economic and earnings growth While traditional valuation metrics remain elevated they look less stretched relative to other asset classes such as global treasury bonds The earnings recovery is key to our thesis of attractive returns for global equities as we do not expect further re-ratings (ie higher multiples) to drive equity markets going forward So far the Q4 earnings results underpin our view that companies have learned how to deal with the current circumstances given earnings results are mostly surpassing projections As a result of this strong showing global EPS growth rates (YoY) will likely be positive again for the Q4 2020 earnings season After an overall double-digit earnings decline in 2020 global earnings are set to recover sharply this year ndash particularly in cyclical market segments Risks to our constructive view on equities come from COVID-19 concerns (mutation potential vaccine disappointments) disappointing fiscal stimulus or earlier-than-expected comments about a withdrawal of mon-etary stimulus
In a portfolio context we keep our overweight in emerging market (EM) equities as we remain bearish on the USD ex-pect higher commodity prices and see the re-opening environ-ment as positive for EM equities We expect cyclical segments that lagged the broader equity benchmark in 2020 ndash such as the UK Germany and financials ndash to catch up amid the im-proved economic outlook and rising inflation expectations
Latest view changes In developed market equities we turn neutral from outperform on Hong Kong equities as a result of their strong performance in recent weeks and increasing macro headwinds In EM eq-uities we now expect South African equities to outperform driven by attractive valuation a strong earnings picture and an accommodative central bank We no longer expect Indian equities to underperform and turn neutral following the gov-ernmentrsquos pro-growth budget announcement an improved macroeconomic outlook and earnings estimates being revised higher at a faster pace than peers
Earnings expected to recover in 2021
Last data point 09022020 Historical performance indications and financial market
scenarios are not reliable indicators of current or future performance Source Factset
Estimates Credit Suisse
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 15
Alternative investments
Still positive on commodities Commodity performance has been strong year-to-date A near-term pause is possible but we retain a positive view and prefer diversified exposure with a cyclical bias
Despite recent resilience we expect listed real estate to lag equities In hedge funds we highlight opportunistic long-short discretionary and EM macro managers as well as private credit
Jelena Kucenko Head of Alternative Investments
Stefan Graber Head of Commodity Strategy
Hedge funds Be selective Hedge funds were flat in January as short covering activity at month-end erased initial gains Fundamental long-short and macro funds suffered the most while relative value and event driven were more resilient Our Trading Conditions Barometer is in favorable territory Combined with regional and sector divergences arising from vaccine rollouts compli-ance with environmental social and governance criteria and record levels of capital-market activity this creates opportuni-ties for long-short managers We also highlight private credit strategies with a focus on consumer loans and mid-market companies which should benefit from resilient household fi-nances and a post-pandemic recovery Discretionary and emerging market (EM) macro managers are preferred in case of market setbacks
Commodities Providing cyclicality and inflation hedge Commodities started 2021 on a strong note focusing on positive growth expectations instead of near-term COVID-19 concerns A near-term pause is possible as the latest gains came ahead of an anticipated reacceleration in industrial ac-tivity That said improved bottom-up fundamentals have flipped aggregate curves into backwardation translating into positive roll yields which may attract additional investor inter-est Commodities also provide a hedge should inflation sur-prise to the upside We retain our positive view on the asset class and favor diversified exposure with a cyclical tilt (oil energy) For oil the March OPEC+ meeting is the next event
risk and a potential source of volatility as the group will likely discuss supply hikes We still think that gold offers diversifica-tion and some upside but the bull run could be maturing as yield curves have started to steepen We thus tone down our optimism on the metal
Real estate Expected to underperform equities Listed real estate slightly outperformed global equities in January thanks to strong earnings results in logistics and a rebound in oversold retail companies as short sellers covered their positions But we believe that further upside potential for the sector is limited as the impact of lockdowns is not yet reflected in landlordsrsquo share prices in our view Additionally valuations in structurally resilient sectors such as logistics and data centers already reflect fundamentals This and the prospect of higher long-term yields and an increased risk of US regulatory headwinds reinforce our negative sector view
Private equity Backdrop still positive Robust investment activity at the end of last year pushed pri-vate equity deal values higher but the asset class still offers better priced opportunities than public markets Dry powder ndash committed but uninvested capital ndash is at a record of over USD 2 trn with subdued fundraising activity expected to re-bound as investors increase commitments in 2021 according to data provider Preqin The expected economic rebound is supportive for the asset class but rising long-term interest rates pose risk to financing costs We highlight strategies offering high growth with limited leverage (venture capital growth capital) and secondary funds which can exploit market opportunities tactically generating excess returns over time
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 16
Foreign exchange
Keep favoring cyclical currencies We maintain a short USD bias and prefer commodity and cyclical currencies such as the EUR GBP or SEK
Within our positive emerging market stance we particularly like the CNY KRW BRL and RUB
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
The USD was broadly flat against other major currencies over the last month Investorsrsquo focus on US fiscal stimulus and an expected rise in US inflation allowed for some normalization in previously large USD short positions While the repricing of near-term growth expectations also in light of a more rapid US vaccination campaign created temporary USD resilience we think this improvement is likely partly reflected in the USD already We maintain that as the Federal Reserve (Fed) keeps short-term rates close to zero for longer there is little room for sustained gains in the USD Moreover US fiscal stimulus will not only deteriorate fiscal balances but also deepen the current account deficit This will also benefit the global econ-omy through improved global trade and sentiment which should weigh on the USD Uncertainties relating to new COVID-19 variants and extended USD short positioning re-main a risk in the short term
Constructive on cyclical currencies A slow start to vaccine rollouts and renewed political risks in Italy somewhat dented sentiment toward the EUR in early February Even so the single currency remained stable vs the USD The Eurozone is facing a delayed recovery but this is consensus already and likely temporary in nature With political risks now subsiding the EU recovery fund operational in the next quarter and the global growth recovery benefitting the export-oriented Eurozone we think EURUSD can gain some further ground and target 124 in 3M Elsewhere in Europe we also remain positive on the SEK and the GBP
vs the USD With global reflation set to continue and com-modity prices likely to remain supported through the ongoing rebalancing we still favor commodity currencies in particular the NZD CAD and NOK
BRL RUB CNY and KRW preferred Emerging market (EM) currencies were broadly range-bound on an index level over the last month but with significant re-turn dispersion across currencies The main arguments sup-porting our attractive view on EM FX remain in place We continue to see further scope for a broad appreciation of EM FX versus the USD Even though the EM economic recovery has peaked economic activity still looks solid relative to de-veloped markets External positions remain in good shape and non-resident flows are still supportive In addition with inflation bottoming and food prices increasing scope for dovish EM central bank surprises seems to be exhausted This should be favorable for EM carry versus the USD
The RUB BRL CNY and KRW remain our preferred curren-cies in EM Both the RUB and BRL are cheaply valued Addi-tionally the RUB should profit from attractive risk-adjusted carry and the BRL from more hawkish central bank expecta-tions In Asia we remain positive on the CNY and KRW and neutral on the other Asian FX We lower our 3M USDCNY target to 635 but keep our 12M target at 625 Our USDKRW targets remain unchanged at 1060 and 1010 in 3M and 12M respectively We retain a mild downward bias on the other USDAsia pairs expecting broad USD weak-ness (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 17
Forecasts
At a glance More information on the forecasts and estimates is available Credit Selected indices on request Past performance is not an indicator of future
Yield Spread Duration 3M TR 12M TR fore-performance Performance can be affected by commissions () (bp) (years) forecast cast fees or other charges as well as exchange rate fluctuations BC Global Aggregate 091 33 731 -010 010
BC Global Treasuries 058 9 862 -030 -050
BC Global IG Corp 141 94 735 033 130 Central bank rate10-year government bonds BC Global HY Corp 429 378 416 062 247
CB rate 10Y JPM EMBI Global Di- 480 344 764 032 126 yield versified HC
in Spot 3M 12M Spot 3M 12M
CHF -075 -075 -075 -026 -030 -030 BC = Barclays Capital IG= Investment Grade JPM = JP Morgan (EMBI+) Index data as of 1522021 Forecast as on 1522021
EUR -050 -050 -050 -035 -030 -030 These forecasts are no reliable indicators of future performance Source Bloomberg
USD 013 000-025 000-025 130 140 150 Credit Suisse GBP 010 010 010 062 050 060
AUD 010 010 010 139 130 140
JPY -010 -010 -010 010 010 010 Foreign exchange
Spot 3M 12M Spot rates are closing prices as of 1622021 Forecast date 1122021 These
EURUSD 121 124 125 forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC USDCHF 089 087 088
EURCHF 108 108 110
USDJPY 10594 10200 10000
Equities EURGBP 087 087 086
GBPUSD 139 143 145 Index Spot PE Div y 3M 12M () AUDUSD 078 078 079
MSCI AC World 1679 202 22 1690 1790 USDCAD 126 123 120
US SampP 500 3933 234 21 3950 4150 EURSEK 1004 1010 1020
Eurostoxx 50 3726 181 26 3700 3850 EURNOK 1016 1020 1020
UK FTSE 100 6749 143 43 6700 7000 EURPLN 449 457 459
Japan Topix 1965 185 21 1940 1970 USDCNY 646 635 625
Australia SampPASX 6917 207 38 6900 7150 USDSGD 132 131 128
200 USDKRW 109898 106000 101000
Switzerland SMI 10908 186 28 10950 11400 USDINR 7264 7270 7200
MSCI Emerging Mar- 190621 166 22 194000 207000 USDBRL 538 525 530 kets USDMXN 1994 2050 2150
Prices as of 1622021 Forecast as on 1122021 Gross return (incl dividends) Spot rates are as of 1722021 These forecasts are no reliable indicators of future performance Source Bloomberg These forecasts are no reliable indicators of future performance Source Bloomberg Datastream Credit SuisseIDC Credit SuisseIDC
Commodities Real GDP growth and inflation Spot 3M 12M GDP Inflation
Gold (USDoz) 1793 1900 2000 growth
Silver (USDoz) 273 27 30 in 2020 2021 2022 2020 2021 2022
Platinum (USDoz) 12624 1300 1250 CH -32 35 20 -07 03 02
Palladium (USDoz) 2390 2400 2500 EMU -72 50 42 03 06 10
Copper (USDton) 8416 8300 7900 USA -35 57 35 12 20 21
WTI Crude Oil (USDbbl) 600 60 60 UK -100 53 75 09 14 18
Bloomberg Commodity index 1815 181 186 Australia -20 35 32 08 15 15
Japan -49 17 19 -02 01 03
Spot rates are as of 1722021 forecast as on 1122021 China 23 71 52 25 11 17 These forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC Last forecast update 10022021
These forecasts are no reliable indicators of future performance Source Bloomberg Credit Suisse
(17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 18
Glossary
Risk warnings
Emerging markets Emerging markets are located in countries that possess one or more of the following characteristics a certain degree of political instability relatively unpredictable financial markets and economic growth patterns a financial market that is still at the development stage or a weak economy Emerging market investments usually result in higher risks as a result of political economic credit exchange rate market liquidity legal settlement market shareholder and creditor risks
Hedge funds Regardless of structure hedge funds are not limited to any particular investment discipline or trading strategy and seek to profit in all kinds of markets by using leverage derivative instruments and speculative investment strategies that may increase the risk of investment loss
Commodity investments Commodity transactions carry a high degree of risk and may not be suitable for many private investors The extent of loss due to market movements can be substantial or even result in a total loss
Real estate Investors in real estate are exposed to liquidity foreign currency and other risks including cyclical risk rental and local market risk as well as environmental risk and changes to the legal situation
Currency risks Investments in foreign currencies involve the additional risk that the foreign currency might lose value against the investorrsquos reference currency
Equity risk Equities are subject to market forces and hence fluctuations in value which are not entirely predictable
Market risk Financial markets rise and fall based on economic conditions inflationary pressures world news and business-specific reports While trends may be detected over time it can be difficult to predict the direction of the market and individual stocks This variability puts stock investments at risk of losing value
High Yield bond risk High Yield Bonds are typically rated below investment grade or are unrated and as such are often subject to a higher risk of issuer default
Perpetual Bond risk Perpetual Bonds have no maturity date and therefore the Interest pay-out depends on the viability of the issuer in the very long term
Subordinated Bond risk In case of liquidation of the issuer investors can only get back the principal after other senior creditors are paid
Risk of Bonds with variable deferral of interest terms Investors would face uncertainty over the amount and time of the interest payments to be received
Callable bond risk Investors face reinvestment risk when the issuer exercises its right to redeem the bond before it matures
Risk of Bonds with extendable maturity date Investors would not have a definite schedule of principal repayment
Convertible or exchangeable bond risk Investors are subject to both equity and bond investment risk
Cocos risk The bond may be written-off fully or partially or converted to common stock on the occurrence of a trigger event
Explanation of indices frequently used in reports
Index Comment
Australia SampPASX 200 SampPASX 200 is an Australian market-capitalization-weighted and float-adjusted stock index calculated by Standard and Poors
BC High Yield Corp USD The US Corporate High Yield Index measures USD-denominated non-investment grade fixed-rate and taxable corporate bonds The index is calculated by Barclays
BC High Yield Pan EUR The Euro Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate EUR The US Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate USD The IG Corporate Index tracks the fixed-rate investment-grade dollar-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
Canada SampPTSX comp The SampPTSX composite index is the Canadian equivalent of the SampP 500 Index in the USA The index contains the largest stocks traded on the Toronto Stock Exchange
Consumer Confidence Indices Consumer Confidence Indices (CCIs) are based on surveys of consumers spending intentions and economic situations as well as their concerns and expectations for the immediate future
CS Hedge Fund Index The Credit Suisse Hedge Fund Index is compiled by Credit Suisse Hedge Index LLC It is an asset-weighted hedge fund index and includes only funds as opposed to separate accounts The index reflects performance net of all hedge fund component performance fees and expenses
CS LSI ex govt CHF The Liquid Swiss Index ex govt CHF is a market-capitalized bond index representing the most liquid and tradable portion of the Swiss bond market excluding Swiss government bonds The index is calculated by Credit Suisse
DAX The German Stock Index stock represents 30 of the largest and most liquid German companies that trade on the Frankfurt Exchange
DXY A measure of the value of the US dollar relative to the majority of its most important trading partners The US Dollar Index is similar to other trade-weighted indices which also use the exchange rates from the same major currencies
Eurostoxx 50 Eurostoxx 50 is a market-capitalization-weighted stock index of 50 leading blue-chip companies in the Eurozone
FTSE EPRANAREIT Global Real Estate Index Series The FTSE EPRANAREIT Global Real Estate Index Series is designed to represent general trends in eligible real estate equities worldwide
Hedge Fund Barometer The Hedge Fund Barometer is a proprietary Credit Suisse scoring tool that measures market conditions for hedge fund strategies It comprises four components liquidity volatility systemic risks and business cycle
Japan Topix TOPIX also known as the Tokyo Stock Price Index tracks all large Japanese companies listed in the stock exchanges first section The index calculation excludes temporary issues and preferred stocks
JPM EM hard curr USD The Emerging Market Bond Index Plus tracks the total return of hard-currency sovereign bonds across the most liquid emerging markets The index encompasses US-denominated Brady bonds (dollar-denominated bonds issued by Latin American countries) loans and Eurobonds
JPM EM local curr hedg USD The JPMorgan Government Bond Index tracks local currency bonds issued by emerging market governments across the most accessible markets for international investors
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 19
MSCI AC AsiaPacific The MSCI All Country Asia Pacific Index captures large and mid cap representation across 5 developed market countries and 8 emerging markets countries in the Asia Pacific region With 1000 constituents the index covers approximately 85 of the free float-adjusted market capitalization in each country
MSCI AC World The MSCI All Country World Index captures large and mid cap representation across 23 developed markets and 23 emerging market countries With roughly 2480 constituents the index covers around 85 of the global investable equity opportunity set
MSCI Emerging Markets MSCI Emerging Markets is a free-float-weighted Index designed to measure equity market performance in global emerging markets The index is developed and calculated by Morgan Stanley Capital International
MSCI EMU The MSCI EMU Index (European Economic and Monetary Union) captures large and mid cap representation across the 10 Developed Markets countries in the EMU With 237 constituents the index covers approximately 85 of the free float-adjusted market capitalization of the EMU
MSCI Europe The MSCI Europe Index captures large and mid cap representation across 15 developed markets countries in Europe With 442 constituents the index covers approximately 85 of the free float-adjusted market capitalization across the European developed markets equity universe
MSCI UK The MSCI United Kingdom Index is designed to measure the performance of the large and mid cap segments of the UK market With 111 constituents the index covers approximately 85 of the free float-adjusted market capitalization in the UK
MSCI World MSCI World is an index of global equity markets developed and calculated by Morgan Stanley Capital International Calculations are based on closing prices with dividends reinvested
OECD Composite Leading Indicators OECD Composite Leading Indicators (CLIs) are designed to provide early signals of turning points in business cycles with components that measure early stages of production respond to changes in economic activity and are sensitive to expectations of future activity
Purchasing Managers Indices Purchasing Managers Indices (PMIs) are economic indicators derived from monthly surveys of private-sector companies The two principal producers of PMIs are Markit Group which conducts PMIs for over 30 countries worldwide and the Institute for Supply Management (ISM) which conducts PMIs for the United States The indices include additional sub-indices for manufac-turing surveys such as new orders employment exports stocks of raw materials and finished goods prices of inputs and finished goods and services
Russell 1000 Growth Index The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe based on 1000 large-cap companies with higher price-to-book ratios and higher forecast growth values
Russell 1000 Index The Russell 1000 Index is a stock market index that represents the highest-ranking 1000 stocks in the Russell 3000 Index (encompassing the 3000 largest US-traded stocks with the underlying companies all incorporated in the USA) and representing about 90 of the total market capitalization of that index The Russell 1000 Index has a weighted average market capitalization of USD 81 billion and the median market capitalization is approximately USD 46 billion
Russell 1000 Value Index The Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe based on 1000 large-cap companies with lower price-to-book ratios and lower expected growth values
Switzerland SMI The Swiss Market Index is made up of 20 of the largest companies listed of the Swiss Performance Index universe It represents 85 of the free-float capitalization of the Swiss equity market As a price index the SMI is not adjusted for dividends
UK FTSE 100 FTSE 100 is a market-capitalization-weighted stock index that represents 100 of the most highly capitalized companies traded on the London Stock exchange The equities have an investibility weighting in the index calculation
US SampP 500 Standard and Poors 500 is a capitalization-weighted stock index representing all major industries in the USA which measures the performance of the domestic economy through changes in the aggregate market value
Abbreviations frequently used in reports
Abb Description Abb Description
3612 MMA 3612 month moving average IMF International Monetary Fund
AI Alternative investments LatAm Latin America
APAC Asia Pacific Libor London interbank offered rate
bbl barrel m bd Million barrels per day
BI Bank Indonesia M1 A measure of the money supply that includes all physical money such as coins and currency as well as demand deposits checking accounts and negotiable order of withdrawal accounts
BoC Bank of Canada M2 A measure of money supply that includes cash and checking deposits (M1) as well as savings deposits money market mutual funds and other time deposits
BoE Bank of England M3 A measure of money supply that includes M2 as well as large time deposits institutional money market funds short-term re-purchase agreements and other larger liquid assets
BoJ Bank of Japan MampA Mergers and acquisitions
bp Basis points MAS Monetary Authority of Singapore
BRIC Brazil Russia China India MLP Master Limited Partnership
CAGR Compound annual growth rate MoM Month-on-month
CBOE Chicago Board Options Exchange MPC Monetary Policy Committee
CFO Cash from operations OAS Option-adjusted spread
CFROI Cash flow return on investment OECD Organisation for Economic Co-operation and Development
DCF Discounted cash flow OIS Overnight indexed swap
DM Developed Market OPEC Organization of Petroleum Exporting Countries
DMs Developed Markets PB Price-to-book value
EBITDA Earnings before interest taxes depreciation and amortization PE Price-earnings ratio
ECB European Central Bank PBoC Peoples Bank of China
EEMEA Eastern Europe Middle East and Africa PEG PE ratio divided by growth in EPS
EM Emerging Market PMI Purchasing Managers Index
EMEA Europe Middle East and Africa PPP Purchasing power parity
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 20
EMs Emerging Markets QE Quantitative easing
EMU European Monetary Union QoQ Quarter-on-quarter
EPS Earnings per share rhs right-hand side (for charts)
ETF Exchange traded funds RBA Reserve Bank of Australia
EV Enterprise value RBI Reserve Bank of India
FCF Free cash flow RBNZ Reserve Bank of New Zealand
Fed US Federal Reserve REIT Real estate investment trust
FFO Funds from operations ROE Return on equity
FOMC Federal Open Market Committee ROIC Return on invested capital
FX Foreign exchange RRR Reserve requirement ratio
G10 Group of Ten SAA Strategic asset allocation
G3 Group of Three SDR Special drawing rights
GDP Gross domestic product SNB Swiss National Bank
GPIF Government Pension Investment Fund TAA Tactical asset allocation
HC Hard currency TWI Trade-Weighted Index
HY High yield VIX Volatility Index
IBD Interest-bearing debt WTI West Texas Intermediate
IC Credit Suisse Investment Committee YoY Year-on-year
IG Investment grade YTD Year-to-date
ILB Inflation-linked bond Personal Consumption An indicator of the average increase in prices for all domestic Expenditure (PCE defla- personal consumption tor)
Currency codes frequently used in reports
Code Currency Code Currency
ARS Argentine peso KRW South Korean won
AUD Australian dollar MXN Mexican peso
BRL Brazilian real MYR Malaysian ringgit
CAD Canadian dollar NOK Norwegian krone
CHF Swiss franc NZD New Zealand dollar
CLP Chilean peso PEN Peruvian nuevo sol
CNY Chinese yuan PHP Philippine peso
COP Colombian peso PLN Polish złoty
CZK Czech koruna RUB Russian ruble
EUR Euro SEK Swedish kronakronor
GBP Pound sterling SGD Singapore dollar
HKD Hong Kong dollar THB Thai baht
HUF Hungarian forint TRY Turkish lira
IDR Indonesian rupiah TWD New Taiwan dollar
ILS Israeli new shekel USD United States dollar
INR Indian rupee ZAR South African rand
JPY Japanese yen
Important information on derivatives
Pricing Option premiums and prices mentioned are indicative only Option premiums and prices can be subject to very rapid changes The prices and premiums mentioned are as of the time indicated in the text and might have changed substantially in the meantime
Risks Derivatives are complex instruments and are intended for sale only to investors who are capable of understanding and assuming all the risks involved Investors must be aware that adding option positions to an existing portfolio may change the characteristics and behavior of that portfolio substantially A portfoliorsquos sensitivity to certain market moves can be heavily impacted by the leverage effect of options
Buying calls Investors who buy call options risk the loss of the entire premium paid if the underlying security trades below the strike price at expiration
Buying puts Investors who buy put options risk loss of the entire premium paid if the underlying security finishes above the strike price at expiration
Selling calls Investors who sell calls commit themselves to sell the underlying for the strike price even if the market price of the underlying is substantially higher Investors who sell covered calls (own the underlying security and sell a call) risk limiting their upside to the strike price plus the upfront premium received and may have their security called away if the security price exceeds the strike price of the short call Additionally the investor has full downside participation that is only partially offset by the premium received upfront If investors are forced to sell the underlying they might be subject to taxing Investors shorting naked calls (ie selling calls but without holding the underlying security) risk unlimited losses of security price less strike price
Selling puts Put sellers commit to buying the underlying security at the strike price in the event the security falls below the strike price The maximum loss is the full strike price less the premium received for selling the put
Buying call spreads Investors who buy call spreads (buy a call and sell a call with a higher strike) risk the loss of the entire premium paid if the underlying trades below the lower strike price at expiration The maximum gain from buying call spreads is the difference between the strike prices less the upfront premium paid
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 21
Selling naked call spreads Selling naked call spreads (sell a call and buy a farther out-of-the-money call with no underlying security position) Investors risk a maximum loss of the difference between the long call strike and the short call strike less the upfront premium taken in if the underlying security finishes above the long call strike at expiration The maximum gain is the upfront premium taken in if the security finishes below the short call strike at expiration
Buying put spreads Investors who buy put spreads (buy a put and sell a put with a lower strike price) also have a maximum loss of the upfront premium paid The maximum gain from buying put spreads is the difference between the strike prices less the upfront premium paid
Buying strangles Buying strangles (buy put and buy call) The maximum loss is the entire premium paid for both options if the underlying trades between the put strike and the call strike at expiration
Selling strangles or straddles Investors who are long a security and short a strangle or straddle risk capping their upside in the security to the strike price of the call that is sold plus the upfront premium received Additionally if the security trades below the strike price of the short put investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short put and will also experience losses in the security position if they owns shares The maximum potential loss is the full value of the strike price (less the value of the premium received) plus losses on the long security position Investors who are short naked strangles or straddles have unlimited potential loss since if the security trades above the call strike price investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short call In addition they are obligated to buy the security at the put strike price (less upfront premium received) if the security fin-ishes below the put strike price at expiration
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 22
Important information on mutual funds Fees and charges etc Different types of fees and commissions (subscription fee amount which must be retained in trust assets repurchase fee etc) are charged when investment trustsfunds are purchased and sold In addition apart from these fees and commissions trust and management fees and other fees (audit fee trust administrative charges carried interest etc) are charged and borne by you through your trust asset Fees and commissions borne by you will be a sum of these amounts Such fees and commissions vary depending on the investment trustfund and depending on the investment status and therefore we cannot provide specific amounts or calculation methods
For detailed information on fees and commissions etc of each re-spective investment trustfund please refer to the pre-contract documents (prospectus and other supplementary documents)
Important information on dividends bull Dividends are different to interest on deposits and are paid from the net asset value of investment trustsfunds Therefore when dividends are paid the base value (net asset value per unit) will decrease by an amount equivalent to the amount paid
bull Dividends may be paid exceeding the profit earned during the calculation period (trading profit including profits of dividends etc after expenses) In this case the base value (net asset value per unit) on the settlement date in this period will decrease compared to that on the settlement date in the previous period Also the level of dividends does not always reflect the rate of return for the investment trustfund during the calculation period
bull A part or all of dividends may be virtually equivalent to some repayment of the principal depending on the purchase price of the investment trustfund by an investor The same can be applied to a case that an increase in the base value (net asset value per unit) is smaller than a dividend amount due to the investment status after purchase of the investment trustfund
Please refer to the prospectus for details
Explanation of major risks (description pursuant to Ar-ticle 37 (Regulation on Advertising etc) of the Financial Instruments and Exchange Act etc) The risks described below are a summary of some general risks of investment trustsfunds (risks which have an impact on net asset value) and do not cover all risks Please refer to the pre-trade documents (prospectus and other supplementary documents)
Price volatility risk Investment trustsfunds invest mainly in equities bonds and derivative products etc The value of the investment trustfund will go up or down due to increases or decreases in the prices of such investments Further the value of such investments will be impacted by political and economic factors the financial standing of an issuer market demand and supply interest rates and other factors
Foreign currency risk Investment trustsfunds which invest in equities or bonds etc denominated in foreign currencies entail a foreign currency risk and the base value (or net asset value) of investment trustsfunds may change depending on the currency exchange rate Even when you do not experience a loss of invest-ment principal when calculated in the base currency you may suffer a loss at conversion into Japanese yen due to fluctuations in exchange rates Fur-thermore investment trustsfunds which utilize currency trading among multiple currencies may incur costs due to such currency trading depending on the difference in short-term interest rates between the currencies and you may suffer a loss
Credit risk For investment trustsfunds which invest in equities or bonds etc the prices of these investments may increase and decrease due to changes in the business or financial standing of the issuer and other factors and you may suffer a loss
Risk pertaining to liquidity Where there is sudden high volume in a particular investment or when sudden changes in the external environment surrounding markets triggers a sudden downturn in a market or period of market turmoil etc investments may not be flexibly traded In such a case a decline in the price of the investment may impact the base value (or net asset value) of the investment trust result-ing in a loss Further the management company may decide to stop calcu-lation of net asset prices or suspend sell or redemption claims
In addition for certain types of investment trustfund there is a risk that particular investments may be designated to a separate account (or side pocket) due to a lack of liquidity When a separate account is utilized by in-vestment trustsfunds restrictions may apply as to when such investments can be liquidated through a sell or redemption claim and there may be a re-striction in the timing or form of redemption claim permissible In particular for Fund of Fund investments when an investment trustfund makes an in-vestment without time limit in another fund the investment trustfund may be influenced by investment results in the other funds
Risk associated with an outflow of money received from sales orders When there is a large volume of sale orders in a short period of time the investment trustfund may be forced to sell structured securities at a lower rate than the prevailing market price to refund monies to investors and as a result you may suffer a loss Also alternative investment trustsfunds gen-erally have a limitation in selling or cashing out the investment compared to traditional investment trustsfunds Many alternative investment trustsfunds only accept a sell or redemption order on a monthly or quarterly basis and therefore you may not be able to rapidly exit the investment in for example times of economic uncertainty
Redemption risk Investment trustsfunds may become subject to mandatory redemption due to a certain reason For details please refer to the pre-trade documents (prospectus and other supplementary documents) before subscription
Concentration risk Investment trustsfunds which invest in a certain investment product or similar investment product group may significantly decrease in value (net asset value) under severe market circumstances
Country risk When changes in political economic and social conditions in investment destination countries and regions cause a dislocation in financial and security markets security prices may significantly change Also investments in emerging markets involve unique risks including small market size and trade volume political and social uncertainties undeveloped market infrastructure such as a clearing system undeveloped information disclosure system and legal system by supervising authorities large fluctuations in exchange rates restrictions on currency remittance to foreign countries and other factors and therefore may have larger price fluctuations compared to investments in major developed markets
Important information on non-Japanese stocks Please refer to the issuer information when you purchase non-Japanese stocks
Disclaimer This material is published solely for information purposes and is intended for the recipientrsquos sole use Credit Suisse does not represent or warrant its ac-curacy or completeness The material is not directly or indirectly intended for any investment solicitation and does not constitute an invitation or offer to conclude a transaction contract for financial instruments etc Credit Suisse accepts no liability for loss arising from the use of the information in this material It is recommended that you consult with the third party professional advisors as to legal or tax issues etc This material should not be reproduced or quoted without the prior express written consent of Credit Suisse The information and opinions expressed in this material were produced by Private Banking Division at Credit Suisse as of the date of writing and are subject to change without notice Views expressed in respect of particular investment products in this material may be different from or inconsistent with the ob-
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 23
servations and views of other divisions besides Private Banking due to the differences in evaluation criteria This material is solely distributed in Japan by Credit Suisse Securities (Japan) Limited Credit Suisse Securities (Japan) Limited will not distribute or forward it outside Japan
You may incur a loss as a result of fluctuations in stock prices if you invest in stocks In relation to foreign stocks you may incur a loss in such stocks due to foreign exchange rate fluctuations etc The market value of bonds is affected by interest rate fluctuations or changes in the financial standing of any issuer etc as such you may incur a loss if you sell such bonds before they are redeemed In relation to foreign bonds you may incur a loss in such bonds due to foreign exchange rate fluctuations etc The net asset value of mutual funds can fall as well as rise due to price changes of underlying stocks bonds etc and foreign exchange rate fluctuations and this may cause you to incur a loss
Structured securities and derivatives are complex instruments 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 of any structured security or transaction may be affected by changes in financial market conditions reference indices volatility and the credit quality of any issuer or reference issuer
Furthermore there are structured securities on which you may incur a loss since the redemption amounts are linked with fluctuations in reference indices etc There are also derivatives on which potential losses may exceed the amount of the initial investment Commission rates for any transactions will be as per the rates agreed between Credit Suisse and you For transactions conducted on a principal to principal basis between Credit Suisse and you the purchase or sale price will be the total consideration Transactions con-
ducted on a principal to principal basis including over the counter derivatives transactions will be quoted as a purchasebid price or selloffer price and for which a difference or spread may exist Charges in relation to transactions will be agreed prior to dealing as per our requirements under the Financial Instruments and Exchange Law
By purchasing financial instruments etc you may incur a loss or a loss in excess of the principal as a result of fluctuations in market prices or other financial indices etc Please read carefully the Pre-Contract Documentation provided for an explanation of associated risks and commissions etc of individual financial instruments etc prior to purchase Please contact your Relationship Manager if you have any questions
UNITED STATES NEITHER THIS REPORT NOR ANY COPY THEREOF MAY BE SENT TAKEN INTO OR DISTRIBUTED IN THE UNITED STATES OR TO ANY US PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE US SECURITIES ACT OF 1933 AS AMENDED)
Credit Suisse Securities (Japan) Limited Financial Instruments Dealer Di-rector-General of Kanto Local Finance Bureau (Kinsho) No 66 a member of Japan Securities Dealers Association Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association
Copyright copy 2021 Credit Suisse Group AG andor its affiliates All rights reserved
21C013A_IS_J
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 24
Imprint
Publisher Credit Suisse Private Banking amp Wealth Management Investment Solutions amp Products
Information about other Investment Solutions amp Products publications Internet httpsinvestmentcredit-suissecom
Intranet (for employees only) httpsisrcsintranet
Subscription (clients) Please contact your customer advisor to subscribe to this publication
Subscription (internal) For information on subscriptions please visit httpisrcsintranetsubscriptions
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 25
Japan investment strategy
Pandemic shock Catalyst forlong-term change The COVID-19 pandemic may accelerate structural change in society and economy
Policymakers will seek to create a pandemic-resistant society and economy
Soichiro Matsumoto Chief Investment Officer Japan
Lockdown policies constitute a deflationary shock Globally lockdowns have been implemented on a wide scale to control the spread of COVID-19 infection This has led to a rapid contraction in demand and a downturn in the economy which has produced a deflationary shock to the global econ-omy To cope with this severe shock governments have launched counter-deflationary measures (reflationary policies) such as monetary easing and fiscal stimulus programs As the COVID-19 pandemic spreads and remains stubbornly resilient these counter-deflationary measures will need to be prolonged
In Europe and the USA the start of vaccination efforts has slowed down the spread of the disease In addition economic activity has recovered quickly in China and other Asian coun-tries due to their success in achieving early infection control The global economy has begun to recover backed by aggres-sive policy support The recovery is gaining momentum as investors are turning their attention toward equities (especially economically sensitive stocks) and commodities which benefit significantly from reflationary policies
A spike inflation can be a tail risk There is much to learn from Japanrsquos previous experience re-garding risks of taking only small steps to counter deflation In contrast the unprecedented scale of the measures currently being taken could lead to a potential ldquooverkillrdquo In particular the large fiscal spending plan currently being mooted in the USA will likely prompt caution about the tail risk of a sharp rise in long-term interest rates on account of a potential unanticipated spike in inflation
This means not only that bond prices will fall and support for current equity valuations will recede but also that there is a greater risk of fiscal pressure from significantly higher interest payments on public debt However the supply-demand gap in major countries is currently wide and we believe such concerns should be consigned to tail risk management
Post-pandemic social and economic changes will continue to accelerate Once the pandemic winds down the worldrsquos social and eco-nomic landscape is unlikely to return to the pre-pandemic ldquonormalrdquo Even if the COVID-19 outbreak is contained the risk of a new pandemic will always persist On the other hand it will be quite difficult to continue with the large-scale mone-tary easing and fiscal spending measures
Therefore the world will need to adjust socially and econom-ically such that it becomes more resistant to future pandemics As was the case when our global society and economy under-went major changes with the advent of the Internet those societies and economies that are able to adapt quickly will come out on top
Supply chain restructuring Due in part to the uncertainty and confusion surrounding the response to the COIVD-19 pandemic the West plus Japan seems to be growing increasingly wary of China In terms of geopolitical risk as the confrontation between the USA and China intensifies the major economies will each seek to in-creasingly rely on domestic supply chains
The global supply chain will likely undergo rapid restructuring especially in areas relating to technology such as cutting-edge semiconductors These are becoming increasingly im-portant not only for economic growth but also for national security Additionally there will be a need to rebuild procure-ment systems for critical medicines and medical supplies which were disrupted by the pandemic
In the past supply chain management has focused primarily on economic benefits but now the emphasis will be on supply chain resilience and independence This will add to cost pressure for companies but we also expect to see benefits due to increased new investment
Supertrends Increasing momentum for change The changes currently accelerating in the wake of the pan-demic will drive long-term structural changes which we have previously covered in our Supertrends reports The widespread adoption of remote work represents a new trend and will constitute a major driver of social and economic digitalization
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 3
Excessive urbanization which has contributed to the spread of infection will stall and this will provide an opportunity to rebuild urban infrastructure
Efforts to reduce socioeconomic disparities are also likely to gain momentum These efforts represent just the start of a push to prevent societies and economies from fragmenting in the face of a pandemic
ESG investment Growing interest in a sustainable so-ciety After the 2008 Global Financial Crisis the world became more aware of the pitfalls of short-term profit-seeking As a result many pension funds and investment institutions have become more supportive of the Principles for Responsible Investment (PRI) as promulgated by the United Nations There is now greater focus on working toward realizing a sustainable society which has led to changes in corporate behavior like improved governance As politicians are also aggressively moving toward measures to promote a sustain-able society a slew of new regulations relating to environmen-tal social and governance (ESG) have been introduced As a result ESG investment is gaining attention as a long-term investment theme and increasingly influencing stock prices
Increasing equity investment Bond investment returns have declined in the current pro-longed low interest rate environment On the other hand the amount of available investible funds is likely to increase due to the easy monetary policy while demand (for bonds) from pension funds is likely to trend higher on account of growing liabilities as the population ages
Long-term changes in global social and economic structures provide investment opportunities in various markets and businesses This will lead to a rise in investor allocations to related stocks and alternative investments
Focus shifts to corporate bonds As returns on government bond and other safe bond invest-ments have decreased considerably in this low interest rate environment investors have moved to more credit-related instruments However the interest rate spread on credit is shrinking gradually Therefore as part of our updated perspec-tive we are focusing on corporate bonds that are denominated in major currencies and are issued by emerging market (EM) companies EM companies are also expanding the scale of their operations and many have stable cash flow The high growth potential of Asian companies makes them an attractive investment target for investors seeking yield
Recommended investment strategies
Investors have learnt an important lesson from the unprece-dented pandemic They are now accustomed to the ldquoGreat Moderationrdquo and conscious of hedging their risks We believe the market has rediscovered the significance of global asset diversification as part of a strong long-term investment strat-egy
Strategies related to prolonged policy support mea-sures With ultra-loose monetary policy likely to be in place for an extended period investors should look to alternative strategies designed to increase yield Every investor will have a greater need to look for investments that convert an acceptable level of risk into yield This includes range-trading in currency markets where interest rate differentials are narrowing and the risk of large fluctuations is receding
Stocks that fit in with long-term themes that are expected to benefit from the transition to a new economic system post-COVID-19 continue toremain attractive Gold is also likely to continue to attract attention as a risk hedge
Strategies for the onset of the economic recovery As the economy recovers while interest rates remain low in-vestment in credit (corporate bonds) will become attractive In particular Asian countries that have been successful in controlling the spread of infection and dollar-denominated bonds issued by companies in this region may constitute an effective strategy for seeking yield
The economic recovery and changing consumption styles are likely to increase investor interest in economically sensitive value stocks as well as stocks of companies that fit in with new market landscape As companies become more aggres-sive in mergers amp acquisitions (MampA) and other investments to reform their business structure private equity too can be an interesting investment option
Accelerating changes related to the pandemic Investment opportunities provided by receding globalism Political commitments designed to deal with Japanrsquos social fragmentation are expected to provide long-term invest-ment opportunities We now focus on strategies including infrastructure investment funds private equity and the long-term themes discussed in a Supertrends series report
Investment lesson ndash increased awareness of risk hedging A growing awareness of the importance of risk prepared-ness is expected to lead to greater global asset diversifica-tion as part of a long-term investment strategy This is because such a strategy can be expected to effectively stabilize returns without incurring a high additional cost
Investment themes related to the advent of a new digital society The pandemic has changed the way people inter-act with each other on a socioeconomic level considerably This has accelerated the rate of digitalization across the economy Our Supertrends series reports explore a number of related investment themes and strategies
Investment opportunities related to full-scale efforts to improve sustainability The world as a whole is now more amenable to accepting the costs of improving sustainability One of the best examples is efforts to create a carbon-free society The adoption of investment metrics that incor-porate an awareness of ESG will also increase Additionally our Supertrend ldquoClimate changerdquo encompasses pertinent investment ideas
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 4
Reaffirming the appeal of Supertrends Examining tail risk Uncontrollable inflation and rising After the pandemic our society is changing at an accelerating pace Our long-term investment themes called Supertrends can be a suitable option for the prudent investor in such times
interest rates In response to the pandemic global debt has ballooned to unprecedented levels Thanks to historically low interest rates the burden of this debt is sustainable However investors should be aware of related risks Uncontrolled inflation and a sharp rise in interest rates may continue to be a tail risk for the market (17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 5
Japan asset allocation
Review of our portfolio allocations The annual review of our Strategic Asset Allocation leads us to reduce our allocation to bonds in portfolios and increase allocations to equities and alternative investments
Soichiro Matsumoto Investment map (regions vs asset classes) Chief Investment Officer Japan
Annual review of our Strategic Asset Allocation Every year Credit Suisse updates its macro market forecasts (risk and return potential) for the next five years and publishes these forecasts in the form of our Capital Market Assumptions (CMA) Based on the new CMA we have review and update our our medium-term asset allocation benchmarks also known as our Strategic Asset Allocation (SAA)
For our 2021 SAA the allocation to bonds has decreased due to lower expected returns while our allocations to equities and alternative investments have increased Source Credit Suisse
(16022021)
JPY international tactical asset allocation (TAA balanced) Balanced TAA Vs benchmark Benchmark SAA 2021
January February Change January February
Liquidity 20 40 20 -30 -10 50
JPY 20 40 20 -30 -10 50
Fixed income 465 315 -150 -10 -10 325
JPY 25 35 10 -15 -05 40
Global corporates 330 180 -150 -15 -15 195
Global high yield 30 30 00 00 00 30
Emerging markets bond USD 40 30 -10 10 00 30
Emerging markets USD corporate 00 40 40 NA 10 30
Equity Emerging markets bond LC 40
445 00 520
-40 75
10 20
NA 20
00 500
Japan 155 180 25 -10 -10 190
World (ex Japan) 290 340 50 30 30 310
Switzerland 05 05 00 00 00 05
Eurozone 25 25 00 00 00 25
North America 125 150 25 00 00 150
United Kingdom 20 20 00 10 10 10
Australia 05 05 00 00 00 05
Emerging markets 50 60 10 20 20 40
LatAm 00 00 00 00 -05 05
APAC 45 50 05 20 20 30
EMEA 05 05 00 00 00 05
Supertrends 60 75 15 00 00 75 Alternative investments 70 125 55 20 00 125
Real estate Japan 25 25 00 00 00 25
Hedge fund 00 25 25 NA 00 25
Private equity 00 75 75 NA 00 75
Commodities 45 00 -45 20 NA 00 Total 1000 1000 00 00 00 1000
Source Credit Suisse
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 6
Supertrends
Supertrends Investmentsolutions In this installment we focus on the ldquoClimate changerdquo Supetrend and suggest investment solutions from sectors that can contribute significantly to reducing greenhouse gas emissions as well as mitigating long-term impacts of global warming
Maki Shimizu Investment Strategist - Japan Strategy
Policy tailwinds The ldquoClimate changerdquo theme is strongly influenced by policy factors hence we expect the recent change of government in the USA to lead to renewed interest in environmental policy issues On his first day in office last month US President Joe Biden announced his countryrsquos return to the Paris Agreement ndash an international framework for combating global warming ndash and began to shift policy course from the previous adminis-tration On environmental issues it may be difficult to reverse the international communityrsquos distrust and skepticism of the USA brought about by the ldquoAmerica Firstrdquo approach of the past four years However shifting to renewable energy sources is one of the major policy targets of President Biden and international cooperation on this issue will likely be gen-uinely welcomed
Currently countries that have ratified the Paris Agreement are struggling to meet their targets for reducing emissions by 2050 As policy support increases business opportunities related to environmental policy are likely to expand at the private sector level Here we focus on sectors that fall under this Supertrend because of their ability to contribute signifi-cantly to reducing greenhouse gas emissions and mitigating long-term impacts of global warming
Investment solution features A common catchphrase for all four sub-themes associated with this Supertrend is ldquosustainable energy supplyrdquo With the Paris Agreementrsquos goal of ldquocarbon neutralityrdquo in mind we look for investment opportunities arising out of a structural transformation in the energy sector via carbon-free electricity sustainable transportation pioneering oil and gas energy conversion and agriculture and food sub-themes We high-light climate change-related companies that primarily develop renewable energy and provide energy storage technologies
Besides companies that are likely to see continued growth via the long-term shift in energy policy we highlight others that are likely to reform the agriculture sector by incorporating automation in their production processes Additionally we highlight related entries from our environmental social and
governance (ESG) related stock list (ESG Top 25) that were discussed in the recent Supetrends report In mutual funds in addition to the Global Security Fund we offer solutions that enable investment in areas related to rising climate change awareness from an ESG perspective
(17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 7
Supertrends
Theme Detail Recommended solution
Anxious societies ndash Inclusive capitalism
AM One Global Security Stock Fund CS Beneficiaries of Anxious Societies Selection
Affordability Basis goods such as housing healthcare and pension have become unaffordable for many people
Employment Skilling reskilling and upskilling are crucial steps as technical progress radically changes required skill set
Personal security Everyday challenges such as the pandemic outbreak or cybersecurity are the most important pain points for people
Infrastructure ndash Closing the Global Core Infrastructure Stock gap Fund CS Infrastructure List
Transport Developed markets have to invest in project replacements while emerging markets continue to spend on growth
Energy amp water Energy transition toward renewables to limit global carbon emission Middle East faces an acute water shortage
Smart cities As 68 of the worldrsquos population will live in urban areas by 2050 cities must become smarter to handle this strong growth
Telecom infrastructure As 5G will be the next major investment cycle for the mobile industry mobile traffic may grow almost five-fold
Technology at the service of AM One Global Security Stock humans Fund CS Technology Selection
Digitalization The number of connected devices is surging and thus edge computing is expected to gain traction in order to capture even more value from data
Virtual reality Growing to the size of todayrsquos smartphone market in the years ahead
Artificial intelligence (AI) Material growth potential for home industries and cities digitalization and healthtech and fintech markets
Industry 40 Robots and automation are entering various non-industry sectors demand for industry robots is rising
Healthtech Digitalization solution biotechnology and AI in product development and healthcare research Silver economy ndash Investing for Select Sector SPDR ETFs (Health-population aging care Consumer Staples Consumer
Discretionary) CS Silver Economy Stocks
Therapeutics amp devices Biopharma and medical device companies to innovate around senior conditions such as heart disease amp cancer
Care amp facilities Managed care organizations hospitals and dedicated facilities to face increasing demand
Health amp life insurance Private pension gap in emerging markets and growing importance of private pension fund amp insurance solutions
Senior consumer choices High spending power of seniors to benefit consumer companies with senior-centric offerings Millennials values AM One Global Security Fund CS
Millennials Favorites
Sustainable business and invest- ESG overlay across the entire millennials stock universe to underpin the importance of sustainability ments
Digital natives Being connected 247 having a strong preference for technology brands driving an education technology revolution
Fun health amp leisure A new way of living and spending with substantial growth potential in emerging markets Climate change AM One Global Security Fund CS
Climate Change Choice ESG Top 25 promotion list
Carbon-free electricity CO2-neutral electricity production and the replacement of coal-fired electricity as a key component of CO2 reduction
Oil amp gas transition pioneers Demand for fossil fuel remains high for now while the transition pioneers will be leading the sector
Sustainable transport Sustainable fuels a switch to electric vehicles more efficient engines and railroads will reduce greenhouse gas (GHG) emissions
Agriculture amp food A growing population and a high CO2 emission from the agriculture sector require efficiency gains
Source Credit Suisse
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 8
Economics
Positive growth outlook beyondwinter soft patch After a likely soft patch in the winter months we expect very strong growth this year
The main risk to our near-term forecast is new virus strains that may necessitate further shutdowns
James P Sweeney Chief Economist and Regional CIO Americas
Peter James Foley Economist
Global growth rebounded strongly in the second half of 2020 We expect a winter soft patch most noticeable in Europe as viral contagion leads to mobility restrictions that hamper service sector activity Beyond that the growth outlook is very positive
Global demand has recently been propped up by developed market households Real retail sales in developed economies have exceeded pre-pandemic levels since September and are now above the long-term trend Business investment has risen too but not as much as consumption The onus is on business investment to drive the recovery further
A dominant feature of the pandemic economy has been the contrast between goods demand which has recovered sharply and services demand which has suffered due to social distancing The divergence is likely to unwind this year as spending that was redirected to goods in 2020 returns to services in 2021 Services consumption in developed market economies is about twice as large as goods consumption and is likely to increase strongly this year as vaccine rollouts support an expansion of activity
In that sense consumer spending on services might substitute some goods spending But at the same time a resurgent service sector may give further tailwinds to the goods sector through business spending
Uncertainties about variants vaccines and stimulus COVID-19 infections are falling in Europe and the USA But new highly contagious strains risk new or extended shut-downs which are the main downside risk to our near-term forecast
Vaccine rollout has not been smooth but the USA and UK will likely vaccinate a sufficient share of their populations by this summer that a strong services recovery is likely Europe and other major economies lag behind which may mean longer restrictions on activity Normalization appears to be out of reach before Q3 in large economies but vaccinations will support increased mobility
The USA is likely to pass another pandemic stimulus bill soon It will likely cost at least half the USD 19 tn price tag of the original plan but even this reduced size will substantially affect the US growth outlook Direct checks to households will im-mediately boost consumer spending and increase household savings further
There is less uncertainty over Eurozone policy support but it may not be forceful enough Europersquos fiscal policy so far has focused on mitigation rather than stimulation But this means that as the economy recovers fiscal support will fade meaning limited upside to growth The European Central Bank has stated it can ease policy further but it is unclear whether this will boost lending in the real economy
Last yearrsquos contraction in the Eurozone was larger than in the USA But the rebound is likely to be weaker We expect Eu-rozone GDP to grow 50 in 2021 while US GDP should grow 57 (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 9
Global investment strategy
Retain preference for EM equities Continued fiscal and monetary policy support and an easing of the pandemic should help Western economies see strong growth in the second half of the year
We retain a cyclical tilt in portfolio allocations through overweight positions in equities with a preference for EM equities and commodities
Philipp Lisibach Chief Global Strategist
The Credit Suisse Investment Committee (IC) has reduced emerging market hard currency (EM HC) sovereign bonds to strategic allocations and changed the return outlook for devel-oped market investment grade (IG) bonds from attractive to neutral Equity allocations are kept at overweight with a continued preference for emerging markets The BCOM also remains at overweight
Reflation expected to support cyclical assets Even though the pandemic continues to weigh on economic activity falling infection rates and hospitalizations alongside vaccine rollouts should allow economies to reopen In combi-nation with continued fiscal and monetary policy support Western economies are likely to see exceptionally strong growth in the second half of 2021 The USA is currently benefiting from a second relief package which is likely to be followed by a third one soon adding fuel to the expected concerted recovery
As such the IC keeps a cyclical bias in portfolio allocations expressed by overweights in equities and the broad commod-ity index (BCOM) In equities we continue to express a pref-erence for emerging markets specifically Chinese equities which show strong price momentum having outperformed global equities since the start of the year Although China has initiated policy-tightening measures we think it will take these steps in a controlled manner without risking denting market sentiment
Risk of inflation scare mitigated by central bank com-mitments Besides the risk that new virus strains with potential resistance to vaccines may fuel market concerns markets could start consolidating in coming months should a rise in US inflation
due to base effects lead to an inflation scare Although we think that such an inflation increase will be temporary uncer-tainty about the outlook for the second half is elevated due to the expected strong growth and likely supply-side bottle-necks as economies reopen To mitigate this risk the contin-ued commitment by central banks above all the US Federal Reserve (Fed) to keep financial conditions easy will be key Recent comments by Fed Chair Powell stressing patience and suggesting that the economy is far from overheating give us confidence that this key market support will stay in place For real assets such as equities and commodities this should continue to prove beneficial
Tight credit spreads Although the anchoring of treasury yields for shorter maturities via central banksrsquo rate guidance should prevent a sudden surge in longer-dated yields we expect them to grind higher as growth momentum builds Thus performance is expected to continue to suffer and the IC is keeping government bonds at underweight Due to tight IG credit spreads the IC has reduced the return outlook for IG from attractive to neutral For EM HC sovereign bonds we take profit on our successful overweight and cut portfolio allocations back to strategic levels as spreads have eroded Investors should find more value in EM HC corporate as well as selected EM local sovereign bonds Despite some USD consolidation at the start of this year the USD is likely to continue its weakening trend against other major currencies in coming months
Watch a video featuring the highlights of the Credit Suisse investment strategy wwwcredit-suissecomciofilm
(15022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 10
Special topic
ESG Integrated Investing according to environmental social and governance (ESG) criteria is in the process of becoming mainstream
Combining the House View with ESG convictions ldquoESG Integratedrdquo is a set of best ideas for investors to gradually transition to multi-asset portfolios that perform solidly both on traditional financial performance metrics and on ESG metrics ldquoESG Integratedrdquo is part of our Signature Convictions
Nannette Hechler-Faydherbe Chief Investment Officer ndash International Wealth Management
Jessie Gisiger Head of Credit Strategy and Investment Themes
Green transitions are at the heart of the fiscal spending and recovery plans put in place in response to the COVID-19 pandemic Against this backdrop strong regulatory momen-tum and fiscal ambitions in the USA Europe and China have only added to a global trend toward integrating ESG criteria at every level of economic activity
There is growing evidence that adhering to ESG criteria not only helps to mitigate our impact on climate change but also supports financial risk-reward for several reasons First be-sides increasing transparency and awareness ESG filters help keep in check the risk of heightened regulatory scrutiny that non-ESG-compliant business practices increasingly face Second ESG factors can impact financial business conditions such as the incurred cost of capital Focusing on good gover-nance and keeping an eye on regulatory risk are equally likely to be beneficial when considering default risk in the corporate bond market Third there are strong investment themes emerging from the policy support currently developing espe-cially in climate change to achieve net-zero carbon emissions by 2050
Signature Convictions ESG Integrated Combining key elements of the Credit Suisse House View with thematic priorities in ESG investing that emerge from these catalysts we have developed a set of best ideas (see table) that can help investors gradually transition their invest-ments toward multi-asset portfolios that perform solidly on both traditional financial performance metrics as well as ESG metrics
In fixed income ESG emerging market corporate bonds and ESG subordinated bonds offer investors an avenue to earn a yield pick-up but at a lower risk of credit spread widening than the broader index Empirical assessments have also shown that companies with higher ESG scores tend to have a lower probability of default Investors looking for an equiva-lent to money-market instruments may consider impact invest-ments which deliver low single-digit returns with limited vola-tility
In equities we highlight the Supertrends climate change and sustainable infrastructure as two key ESG-related themes that are focused on decarbonizing economic activity and are catalyzed by global regulatory momentum For investors looking for single-stock investments our Credit Suisse ESG Top 25 list includes stocks from our high conviction list that are in category 3 (ldquoESG awarerdquo) or category 4 (ldquoThematicrdquo) of our Credit Suisse ESG classification framework
Investors who would like to invest according to our preference for EM equities also have the option of doing so in an ESG-compliant manner through the MSCI Emerging Markets ESG Leaders Index That index has on average outperformed the MSCI Emerging Markets Index since 2008 This outperfor-mance can be explained by the MSCI Emerging Markets ESG Leaders Indexrsquos higher exposure to growth sectors and strong orientation to new economy sectors that benefit from powerful structural growth drivers Separately green real estate is likely to lead to higher occupancy rates and a lower probabil-ity of income loss resulting in a more stable income stream
For investors looking to alternative investments for further diversification impact private equity sustainable alpha hedge fund and carbon emission allowance futures are also interest-ing
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 11
Signature Convictions ESG Integrated
Source Credit Suisse
(16022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 12
Special topic
Bullish hopes in Chinarsquos Year ofthe Ox Our positive view on equities remains in place We express it through a preference for emerging market particularly Chinese equities
After strong gains so far this year we challenge the quality and longevity of Chinarsquos bull market and explain why we remain optimistic
John William Huia Woods CIO APAC
Just ahead of Chinese New Year Chinarsquos benchmark Shanghai Composite Index surged to new highs for the year Chinarsquos strong market gains are fueled by a rush of excess liquidity the likes of which we have not seen since 2015 But experienced investors will know that a rising tide can just as easily ndash and quickly ndash turn into an ebbing tide particularly when fundamentals become unsupportive
Red flags In fact red flags are not hard to find Possibly the most im-portant observation is that Chinarsquos growth momentum has passed its peak and will likely decelerate into 2021 A decel-erating economy does not necessarily hurt a bull market but it does not necessarily help it either
Equally important is the view that Chinarsquos ndash increasingly less dovish ndash authorities are unlikely to further stimulate the economy It has been widely observed that they remain vigilant and concerned toward the possible formation of price bubbles in real and financial assets including equity markets
Indeed the Peoplersquos Bank of Chinarsquos willingness in late January 2021 to withdraw rather than add CNY 570 bn of liquidity from interbank markets ahead of the Chinese New Year suggests that a clear inflection point has been reached with monetary policy now normalizing after two years of stimulus and easy money
Amid decelerating economic growth corporate revenues are under pressure meaning analyst earnings revisions are flat-lining and thus failing to keep pace with more vibrant emerging andor developing markets In absolute terms weaker earn-ings exert upward pressure on valuations Yet a liquidity-driven rally can still push valuations higher
Imbalance The liquidity-centric imbalance at the heart of Chinarsquos bull market leaves it exposed and vulnerable to correction in our opinion An environment of tightening monetary policy decel-erating growth and stretched valuations are generally not conducive to sustained price appreciation In fact in Chinarsquos case incrementally greater inflows of liquidity will be required to sustain existing price levels At least from an onshore per-spective the music will stop
Intriguingly attention is now turning to foreign investor inflows which hitherto have been muted But there are reasons why a rebound in sentiment might be expected including improving geopolitical sentiment with the new administration in the USA and expectation of CNY appreciation which should boost returns for USD investors Overall a reacceleration in flows could be a key factor in keeping Chinese markets supported
Sound diversification is key On balance at least for the next few months we remain overweight Chinese equities in a portfolio context Our funda-mental concerns are medium-term in nature while near-term risks ndash supported by liquidity ndash are tilted toward further price gains In line with our House View we emphasize the value of well-diversified exposure to EM equities overall
(15022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 13
Fixed income
EM HC corporate bonds preferred The ongoing reflationary path is going to support long-dated yields warranting a con-tinued cautious stance on government bonds
We reduce our allocation to EM HC sovereign bonds to benchmark weight We no longer see IG credit as attractive and prefer EM HC corporate bonds
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
Global benchmark yields have continued to trend higher in the last few weeks supported by reflationary expectations Despite the marketsrsquo repricing of more US fiscal stimulus the Federal Reserve (Fed) kept control of front-end rates expectations with the US yield curve further steepening as a result Going forward long-dated inflation expectations are still expected to be the main driver of nominal benchmark yields Both should moderately rise in tandem particularly in the USA With other developed regions following the same reflationary theme albeit with a lag we anticipate that global government bonds will remain an unattractive investment We therefore keep exposure below benchmark allocations in portfolios Furthermore we keep a relatively short duration stance in US Eurozone and Swiss bond markets and prefer US inflation-linked bonds over comparable nominal govern-ment bonds
IG credit no longer attractive prefer EM HC corporate bonds We no longer think that global investment grade (IG) credit offers attractive return potential While monetary policy re-mains supportive IG spreads are already at historical lows and no longer offer enough compensation against the further rise in benchmark yields we expect Global high yield (HY) credit market returns should remain attractive thanks to policy support and the economic recovery we project However we
see limited further spread compression potential in US HY and European HY from the current historical lows We believe emerging market hard currency (EM HC) corporate bonds are most attractive within credit with pro-cyclical emerging markets benefiting from the global growth rebound expected this year At the same time and due to their comparatively low benchmark duration EM HC corporate bonds are less sensitive to higher US government yields than global IG EM HC corporates on average provide similar credit fundamentals to developed market credit but offer more attractive spreads amid the current reflationary environment Also we see more opportunities in EM HC HY corporates particularly in Asia where spreads offer a premium of around 200 bp over US HY
EM HC sovereigns reduced to benchmark allocation EM HC sovereign bond valuations are currently tight with spreads not far off the lows reached after the great financial crisis Inflation has largely bottomed out due to base effects food and energy prices and there is limited scope for further monetary stimulus EM HC sovereign bond spreads have a high correlation with US Treasury yields With the latter still on the rise risks to EM HC sovereign bonds are increasing Positioning is at record highs and flows continue to acceler-ate This suggests that a further strong performance is less likely Given these considerations we have decided to reduce EM HC sovereign bonds to benchmark allocation in our portfolios (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 14
Equities
Remain constructive on globalequities We maintain our attractive return outlook for global equities with a preference for emerging markets UK Germany financials materials and health care
After a double-digit earnings decline in 2020 global earnings are set to recover sharply this year
Marc Haumlfliger Global Equity Strategist
We maintain our attractive return outlook for global equities on the back of supportive monetary conditions vaccine roll-outs growing stimulus prospects and our constructive outlook for economic and earnings growth While traditional valuation metrics remain elevated they look less stretched relative to other asset classes such as global treasury bonds The earnings recovery is key to our thesis of attractive returns for global equities as we do not expect further re-ratings (ie higher multiples) to drive equity markets going forward So far the Q4 earnings results underpin our view that companies have learned how to deal with the current circumstances given earnings results are mostly surpassing projections As a result of this strong showing global EPS growth rates (YoY) will likely be positive again for the Q4 2020 earnings season After an overall double-digit earnings decline in 2020 global earnings are set to recover sharply this year ndash particularly in cyclical market segments Risks to our constructive view on equities come from COVID-19 concerns (mutation potential vaccine disappointments) disappointing fiscal stimulus or earlier-than-expected comments about a withdrawal of mon-etary stimulus
In a portfolio context we keep our overweight in emerging market (EM) equities as we remain bearish on the USD ex-pect higher commodity prices and see the re-opening environ-ment as positive for EM equities We expect cyclical segments that lagged the broader equity benchmark in 2020 ndash such as the UK Germany and financials ndash to catch up amid the im-proved economic outlook and rising inflation expectations
Latest view changes In developed market equities we turn neutral from outperform on Hong Kong equities as a result of their strong performance in recent weeks and increasing macro headwinds In EM eq-uities we now expect South African equities to outperform driven by attractive valuation a strong earnings picture and an accommodative central bank We no longer expect Indian equities to underperform and turn neutral following the gov-ernmentrsquos pro-growth budget announcement an improved macroeconomic outlook and earnings estimates being revised higher at a faster pace than peers
Earnings expected to recover in 2021
Last data point 09022020 Historical performance indications and financial market
scenarios are not reliable indicators of current or future performance Source Factset
Estimates Credit Suisse
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 15
Alternative investments
Still positive on commodities Commodity performance has been strong year-to-date A near-term pause is possible but we retain a positive view and prefer diversified exposure with a cyclical bias
Despite recent resilience we expect listed real estate to lag equities In hedge funds we highlight opportunistic long-short discretionary and EM macro managers as well as private credit
Jelena Kucenko Head of Alternative Investments
Stefan Graber Head of Commodity Strategy
Hedge funds Be selective Hedge funds were flat in January as short covering activity at month-end erased initial gains Fundamental long-short and macro funds suffered the most while relative value and event driven were more resilient Our Trading Conditions Barometer is in favorable territory Combined with regional and sector divergences arising from vaccine rollouts compli-ance with environmental social and governance criteria and record levels of capital-market activity this creates opportuni-ties for long-short managers We also highlight private credit strategies with a focus on consumer loans and mid-market companies which should benefit from resilient household fi-nances and a post-pandemic recovery Discretionary and emerging market (EM) macro managers are preferred in case of market setbacks
Commodities Providing cyclicality and inflation hedge Commodities started 2021 on a strong note focusing on positive growth expectations instead of near-term COVID-19 concerns A near-term pause is possible as the latest gains came ahead of an anticipated reacceleration in industrial ac-tivity That said improved bottom-up fundamentals have flipped aggregate curves into backwardation translating into positive roll yields which may attract additional investor inter-est Commodities also provide a hedge should inflation sur-prise to the upside We retain our positive view on the asset class and favor diversified exposure with a cyclical tilt (oil energy) For oil the March OPEC+ meeting is the next event
risk and a potential source of volatility as the group will likely discuss supply hikes We still think that gold offers diversifica-tion and some upside but the bull run could be maturing as yield curves have started to steepen We thus tone down our optimism on the metal
Real estate Expected to underperform equities Listed real estate slightly outperformed global equities in January thanks to strong earnings results in logistics and a rebound in oversold retail companies as short sellers covered their positions But we believe that further upside potential for the sector is limited as the impact of lockdowns is not yet reflected in landlordsrsquo share prices in our view Additionally valuations in structurally resilient sectors such as logistics and data centers already reflect fundamentals This and the prospect of higher long-term yields and an increased risk of US regulatory headwinds reinforce our negative sector view
Private equity Backdrop still positive Robust investment activity at the end of last year pushed pri-vate equity deal values higher but the asset class still offers better priced opportunities than public markets Dry powder ndash committed but uninvested capital ndash is at a record of over USD 2 trn with subdued fundraising activity expected to re-bound as investors increase commitments in 2021 according to data provider Preqin The expected economic rebound is supportive for the asset class but rising long-term interest rates pose risk to financing costs We highlight strategies offering high growth with limited leverage (venture capital growth capital) and secondary funds which can exploit market opportunities tactically generating excess returns over time
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 16
Foreign exchange
Keep favoring cyclical currencies We maintain a short USD bias and prefer commodity and cyclical currencies such as the EUR GBP or SEK
Within our positive emerging market stance we particularly like the CNY KRW BRL and RUB
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
The USD was broadly flat against other major currencies over the last month Investorsrsquo focus on US fiscal stimulus and an expected rise in US inflation allowed for some normalization in previously large USD short positions While the repricing of near-term growth expectations also in light of a more rapid US vaccination campaign created temporary USD resilience we think this improvement is likely partly reflected in the USD already We maintain that as the Federal Reserve (Fed) keeps short-term rates close to zero for longer there is little room for sustained gains in the USD Moreover US fiscal stimulus will not only deteriorate fiscal balances but also deepen the current account deficit This will also benefit the global econ-omy through improved global trade and sentiment which should weigh on the USD Uncertainties relating to new COVID-19 variants and extended USD short positioning re-main a risk in the short term
Constructive on cyclical currencies A slow start to vaccine rollouts and renewed political risks in Italy somewhat dented sentiment toward the EUR in early February Even so the single currency remained stable vs the USD The Eurozone is facing a delayed recovery but this is consensus already and likely temporary in nature With political risks now subsiding the EU recovery fund operational in the next quarter and the global growth recovery benefitting the export-oriented Eurozone we think EURUSD can gain some further ground and target 124 in 3M Elsewhere in Europe we also remain positive on the SEK and the GBP
vs the USD With global reflation set to continue and com-modity prices likely to remain supported through the ongoing rebalancing we still favor commodity currencies in particular the NZD CAD and NOK
BRL RUB CNY and KRW preferred Emerging market (EM) currencies were broadly range-bound on an index level over the last month but with significant re-turn dispersion across currencies The main arguments sup-porting our attractive view on EM FX remain in place We continue to see further scope for a broad appreciation of EM FX versus the USD Even though the EM economic recovery has peaked economic activity still looks solid relative to de-veloped markets External positions remain in good shape and non-resident flows are still supportive In addition with inflation bottoming and food prices increasing scope for dovish EM central bank surprises seems to be exhausted This should be favorable for EM carry versus the USD
The RUB BRL CNY and KRW remain our preferred curren-cies in EM Both the RUB and BRL are cheaply valued Addi-tionally the RUB should profit from attractive risk-adjusted carry and the BRL from more hawkish central bank expecta-tions In Asia we remain positive on the CNY and KRW and neutral on the other Asian FX We lower our 3M USDCNY target to 635 but keep our 12M target at 625 Our USDKRW targets remain unchanged at 1060 and 1010 in 3M and 12M respectively We retain a mild downward bias on the other USDAsia pairs expecting broad USD weak-ness (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 17
Forecasts
At a glance More information on the forecasts and estimates is available Credit Selected indices on request Past performance is not an indicator of future
Yield Spread Duration 3M TR 12M TR fore-performance Performance can be affected by commissions () (bp) (years) forecast cast fees or other charges as well as exchange rate fluctuations BC Global Aggregate 091 33 731 -010 010
BC Global Treasuries 058 9 862 -030 -050
BC Global IG Corp 141 94 735 033 130 Central bank rate10-year government bonds BC Global HY Corp 429 378 416 062 247
CB rate 10Y JPM EMBI Global Di- 480 344 764 032 126 yield versified HC
in Spot 3M 12M Spot 3M 12M
CHF -075 -075 -075 -026 -030 -030 BC = Barclays Capital IG= Investment Grade JPM = JP Morgan (EMBI+) Index data as of 1522021 Forecast as on 1522021
EUR -050 -050 -050 -035 -030 -030 These forecasts are no reliable indicators of future performance Source Bloomberg
USD 013 000-025 000-025 130 140 150 Credit Suisse GBP 010 010 010 062 050 060
AUD 010 010 010 139 130 140
JPY -010 -010 -010 010 010 010 Foreign exchange
Spot 3M 12M Spot rates are closing prices as of 1622021 Forecast date 1122021 These
EURUSD 121 124 125 forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC USDCHF 089 087 088
EURCHF 108 108 110
USDJPY 10594 10200 10000
Equities EURGBP 087 087 086
GBPUSD 139 143 145 Index Spot PE Div y 3M 12M () AUDUSD 078 078 079
MSCI AC World 1679 202 22 1690 1790 USDCAD 126 123 120
US SampP 500 3933 234 21 3950 4150 EURSEK 1004 1010 1020
Eurostoxx 50 3726 181 26 3700 3850 EURNOK 1016 1020 1020
UK FTSE 100 6749 143 43 6700 7000 EURPLN 449 457 459
Japan Topix 1965 185 21 1940 1970 USDCNY 646 635 625
Australia SampPASX 6917 207 38 6900 7150 USDSGD 132 131 128
200 USDKRW 109898 106000 101000
Switzerland SMI 10908 186 28 10950 11400 USDINR 7264 7270 7200
MSCI Emerging Mar- 190621 166 22 194000 207000 USDBRL 538 525 530 kets USDMXN 1994 2050 2150
Prices as of 1622021 Forecast as on 1122021 Gross return (incl dividends) Spot rates are as of 1722021 These forecasts are no reliable indicators of future performance Source Bloomberg These forecasts are no reliable indicators of future performance Source Bloomberg Datastream Credit SuisseIDC Credit SuisseIDC
Commodities Real GDP growth and inflation Spot 3M 12M GDP Inflation
Gold (USDoz) 1793 1900 2000 growth
Silver (USDoz) 273 27 30 in 2020 2021 2022 2020 2021 2022
Platinum (USDoz) 12624 1300 1250 CH -32 35 20 -07 03 02
Palladium (USDoz) 2390 2400 2500 EMU -72 50 42 03 06 10
Copper (USDton) 8416 8300 7900 USA -35 57 35 12 20 21
WTI Crude Oil (USDbbl) 600 60 60 UK -100 53 75 09 14 18
Bloomberg Commodity index 1815 181 186 Australia -20 35 32 08 15 15
Japan -49 17 19 -02 01 03
Spot rates are as of 1722021 forecast as on 1122021 China 23 71 52 25 11 17 These forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC Last forecast update 10022021
These forecasts are no reliable indicators of future performance Source Bloomberg Credit Suisse
(17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 18
Glossary
Risk warnings
Emerging markets Emerging markets are located in countries that possess one or more of the following characteristics a certain degree of political instability relatively unpredictable financial markets and economic growth patterns a financial market that is still at the development stage or a weak economy Emerging market investments usually result in higher risks as a result of political economic credit exchange rate market liquidity legal settlement market shareholder and creditor risks
Hedge funds Regardless of structure hedge funds are not limited to any particular investment discipline or trading strategy and seek to profit in all kinds of markets by using leverage derivative instruments and speculative investment strategies that may increase the risk of investment loss
Commodity investments Commodity transactions carry a high degree of risk and may not be suitable for many private investors The extent of loss due to market movements can be substantial or even result in a total loss
Real estate Investors in real estate are exposed to liquidity foreign currency and other risks including cyclical risk rental and local market risk as well as environmental risk and changes to the legal situation
Currency risks Investments in foreign currencies involve the additional risk that the foreign currency might lose value against the investorrsquos reference currency
Equity risk Equities are subject to market forces and hence fluctuations in value which are not entirely predictable
Market risk Financial markets rise and fall based on economic conditions inflationary pressures world news and business-specific reports While trends may be detected over time it can be difficult to predict the direction of the market and individual stocks This variability puts stock investments at risk of losing value
High Yield bond risk High Yield Bonds are typically rated below investment grade or are unrated and as such are often subject to a higher risk of issuer default
Perpetual Bond risk Perpetual Bonds have no maturity date and therefore the Interest pay-out depends on the viability of the issuer in the very long term
Subordinated Bond risk In case of liquidation of the issuer investors can only get back the principal after other senior creditors are paid
Risk of Bonds with variable deferral of interest terms Investors would face uncertainty over the amount and time of the interest payments to be received
Callable bond risk Investors face reinvestment risk when the issuer exercises its right to redeem the bond before it matures
Risk of Bonds with extendable maturity date Investors would not have a definite schedule of principal repayment
Convertible or exchangeable bond risk Investors are subject to both equity and bond investment risk
Cocos risk The bond may be written-off fully or partially or converted to common stock on the occurrence of a trigger event
Explanation of indices frequently used in reports
Index Comment
Australia SampPASX 200 SampPASX 200 is an Australian market-capitalization-weighted and float-adjusted stock index calculated by Standard and Poors
BC High Yield Corp USD The US Corporate High Yield Index measures USD-denominated non-investment grade fixed-rate and taxable corporate bonds The index is calculated by Barclays
BC High Yield Pan EUR The Euro Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate EUR The US Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate USD The IG Corporate Index tracks the fixed-rate investment-grade dollar-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
Canada SampPTSX comp The SampPTSX composite index is the Canadian equivalent of the SampP 500 Index in the USA The index contains the largest stocks traded on the Toronto Stock Exchange
Consumer Confidence Indices Consumer Confidence Indices (CCIs) are based on surveys of consumers spending intentions and economic situations as well as their concerns and expectations for the immediate future
CS Hedge Fund Index The Credit Suisse Hedge Fund Index is compiled by Credit Suisse Hedge Index LLC It is an asset-weighted hedge fund index and includes only funds as opposed to separate accounts The index reflects performance net of all hedge fund component performance fees and expenses
CS LSI ex govt CHF The Liquid Swiss Index ex govt CHF is a market-capitalized bond index representing the most liquid and tradable portion of the Swiss bond market excluding Swiss government bonds The index is calculated by Credit Suisse
DAX The German Stock Index stock represents 30 of the largest and most liquid German companies that trade on the Frankfurt Exchange
DXY A measure of the value of the US dollar relative to the majority of its most important trading partners The US Dollar Index is similar to other trade-weighted indices which also use the exchange rates from the same major currencies
Eurostoxx 50 Eurostoxx 50 is a market-capitalization-weighted stock index of 50 leading blue-chip companies in the Eurozone
FTSE EPRANAREIT Global Real Estate Index Series The FTSE EPRANAREIT Global Real Estate Index Series is designed to represent general trends in eligible real estate equities worldwide
Hedge Fund Barometer The Hedge Fund Barometer is a proprietary Credit Suisse scoring tool that measures market conditions for hedge fund strategies It comprises four components liquidity volatility systemic risks and business cycle
Japan Topix TOPIX also known as the Tokyo Stock Price Index tracks all large Japanese companies listed in the stock exchanges first section The index calculation excludes temporary issues and preferred stocks
JPM EM hard curr USD The Emerging Market Bond Index Plus tracks the total return of hard-currency sovereign bonds across the most liquid emerging markets The index encompasses US-denominated Brady bonds (dollar-denominated bonds issued by Latin American countries) loans and Eurobonds
JPM EM local curr hedg USD The JPMorgan Government Bond Index tracks local currency bonds issued by emerging market governments across the most accessible markets for international investors
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 19
MSCI AC AsiaPacific The MSCI All Country Asia Pacific Index captures large and mid cap representation across 5 developed market countries and 8 emerging markets countries in the Asia Pacific region With 1000 constituents the index covers approximately 85 of the free float-adjusted market capitalization in each country
MSCI AC World The MSCI All Country World Index captures large and mid cap representation across 23 developed markets and 23 emerging market countries With roughly 2480 constituents the index covers around 85 of the global investable equity opportunity set
MSCI Emerging Markets MSCI Emerging Markets is a free-float-weighted Index designed to measure equity market performance in global emerging markets The index is developed and calculated by Morgan Stanley Capital International
MSCI EMU The MSCI EMU Index (European Economic and Monetary Union) captures large and mid cap representation across the 10 Developed Markets countries in the EMU With 237 constituents the index covers approximately 85 of the free float-adjusted market capitalization of the EMU
MSCI Europe The MSCI Europe Index captures large and mid cap representation across 15 developed markets countries in Europe With 442 constituents the index covers approximately 85 of the free float-adjusted market capitalization across the European developed markets equity universe
MSCI UK The MSCI United Kingdom Index is designed to measure the performance of the large and mid cap segments of the UK market With 111 constituents the index covers approximately 85 of the free float-adjusted market capitalization in the UK
MSCI World MSCI World is an index of global equity markets developed and calculated by Morgan Stanley Capital International Calculations are based on closing prices with dividends reinvested
OECD Composite Leading Indicators OECD Composite Leading Indicators (CLIs) are designed to provide early signals of turning points in business cycles with components that measure early stages of production respond to changes in economic activity and are sensitive to expectations of future activity
Purchasing Managers Indices Purchasing Managers Indices (PMIs) are economic indicators derived from monthly surveys of private-sector companies The two principal producers of PMIs are Markit Group which conducts PMIs for over 30 countries worldwide and the Institute for Supply Management (ISM) which conducts PMIs for the United States The indices include additional sub-indices for manufac-turing surveys such as new orders employment exports stocks of raw materials and finished goods prices of inputs and finished goods and services
Russell 1000 Growth Index The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe based on 1000 large-cap companies with higher price-to-book ratios and higher forecast growth values
Russell 1000 Index The Russell 1000 Index is a stock market index that represents the highest-ranking 1000 stocks in the Russell 3000 Index (encompassing the 3000 largest US-traded stocks with the underlying companies all incorporated in the USA) and representing about 90 of the total market capitalization of that index The Russell 1000 Index has a weighted average market capitalization of USD 81 billion and the median market capitalization is approximately USD 46 billion
Russell 1000 Value Index The Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe based on 1000 large-cap companies with lower price-to-book ratios and lower expected growth values
Switzerland SMI The Swiss Market Index is made up of 20 of the largest companies listed of the Swiss Performance Index universe It represents 85 of the free-float capitalization of the Swiss equity market As a price index the SMI is not adjusted for dividends
UK FTSE 100 FTSE 100 is a market-capitalization-weighted stock index that represents 100 of the most highly capitalized companies traded on the London Stock exchange The equities have an investibility weighting in the index calculation
US SampP 500 Standard and Poors 500 is a capitalization-weighted stock index representing all major industries in the USA which measures the performance of the domestic economy through changes in the aggregate market value
Abbreviations frequently used in reports
Abb Description Abb Description
3612 MMA 3612 month moving average IMF International Monetary Fund
AI Alternative investments LatAm Latin America
APAC Asia Pacific Libor London interbank offered rate
bbl barrel m bd Million barrels per day
BI Bank Indonesia M1 A measure of the money supply that includes all physical money such as coins and currency as well as demand deposits checking accounts and negotiable order of withdrawal accounts
BoC Bank of Canada M2 A measure of money supply that includes cash and checking deposits (M1) as well as savings deposits money market mutual funds and other time deposits
BoE Bank of England M3 A measure of money supply that includes M2 as well as large time deposits institutional money market funds short-term re-purchase agreements and other larger liquid assets
BoJ Bank of Japan MampA Mergers and acquisitions
bp Basis points MAS Monetary Authority of Singapore
BRIC Brazil Russia China India MLP Master Limited Partnership
CAGR Compound annual growth rate MoM Month-on-month
CBOE Chicago Board Options Exchange MPC Monetary Policy Committee
CFO Cash from operations OAS Option-adjusted spread
CFROI Cash flow return on investment OECD Organisation for Economic Co-operation and Development
DCF Discounted cash flow OIS Overnight indexed swap
DM Developed Market OPEC Organization of Petroleum Exporting Countries
DMs Developed Markets PB Price-to-book value
EBITDA Earnings before interest taxes depreciation and amortization PE Price-earnings ratio
ECB European Central Bank PBoC Peoples Bank of China
EEMEA Eastern Europe Middle East and Africa PEG PE ratio divided by growth in EPS
EM Emerging Market PMI Purchasing Managers Index
EMEA Europe Middle East and Africa PPP Purchasing power parity
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 20
EMs Emerging Markets QE Quantitative easing
EMU European Monetary Union QoQ Quarter-on-quarter
EPS Earnings per share rhs right-hand side (for charts)
ETF Exchange traded funds RBA Reserve Bank of Australia
EV Enterprise value RBI Reserve Bank of India
FCF Free cash flow RBNZ Reserve Bank of New Zealand
Fed US Federal Reserve REIT Real estate investment trust
FFO Funds from operations ROE Return on equity
FOMC Federal Open Market Committee ROIC Return on invested capital
FX Foreign exchange RRR Reserve requirement ratio
G10 Group of Ten SAA Strategic asset allocation
G3 Group of Three SDR Special drawing rights
GDP Gross domestic product SNB Swiss National Bank
GPIF Government Pension Investment Fund TAA Tactical asset allocation
HC Hard currency TWI Trade-Weighted Index
HY High yield VIX Volatility Index
IBD Interest-bearing debt WTI West Texas Intermediate
IC Credit Suisse Investment Committee YoY Year-on-year
IG Investment grade YTD Year-to-date
ILB Inflation-linked bond Personal Consumption An indicator of the average increase in prices for all domestic Expenditure (PCE defla- personal consumption tor)
Currency codes frequently used in reports
Code Currency Code Currency
ARS Argentine peso KRW South Korean won
AUD Australian dollar MXN Mexican peso
BRL Brazilian real MYR Malaysian ringgit
CAD Canadian dollar NOK Norwegian krone
CHF Swiss franc NZD New Zealand dollar
CLP Chilean peso PEN Peruvian nuevo sol
CNY Chinese yuan PHP Philippine peso
COP Colombian peso PLN Polish złoty
CZK Czech koruna RUB Russian ruble
EUR Euro SEK Swedish kronakronor
GBP Pound sterling SGD Singapore dollar
HKD Hong Kong dollar THB Thai baht
HUF Hungarian forint TRY Turkish lira
IDR Indonesian rupiah TWD New Taiwan dollar
ILS Israeli new shekel USD United States dollar
INR Indian rupee ZAR South African rand
JPY Japanese yen
Important information on derivatives
Pricing Option premiums and prices mentioned are indicative only Option premiums and prices can be subject to very rapid changes The prices and premiums mentioned are as of the time indicated in the text and might have changed substantially in the meantime
Risks Derivatives are complex instruments and are intended for sale only to investors who are capable of understanding and assuming all the risks involved Investors must be aware that adding option positions to an existing portfolio may change the characteristics and behavior of that portfolio substantially A portfoliorsquos sensitivity to certain market moves can be heavily impacted by the leverage effect of options
Buying calls Investors who buy call options risk the loss of the entire premium paid if the underlying security trades below the strike price at expiration
Buying puts Investors who buy put options risk loss of the entire premium paid if the underlying security finishes above the strike price at expiration
Selling calls Investors who sell calls commit themselves to sell the underlying for the strike price even if the market price of the underlying is substantially higher Investors who sell covered calls (own the underlying security and sell a call) risk limiting their upside to the strike price plus the upfront premium received and may have their security called away if the security price exceeds the strike price of the short call Additionally the investor has full downside participation that is only partially offset by the premium received upfront If investors are forced to sell the underlying they might be subject to taxing Investors shorting naked calls (ie selling calls but without holding the underlying security) risk unlimited losses of security price less strike price
Selling puts Put sellers commit to buying the underlying security at the strike price in the event the security falls below the strike price The maximum loss is the full strike price less the premium received for selling the put
Buying call spreads Investors who buy call spreads (buy a call and sell a call with a higher strike) risk the loss of the entire premium paid if the underlying trades below the lower strike price at expiration The maximum gain from buying call spreads is the difference between the strike prices less the upfront premium paid
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 21
Selling naked call spreads Selling naked call spreads (sell a call and buy a farther out-of-the-money call with no underlying security position) Investors risk a maximum loss of the difference between the long call strike and the short call strike less the upfront premium taken in if the underlying security finishes above the long call strike at expiration The maximum gain is the upfront premium taken in if the security finishes below the short call strike at expiration
Buying put spreads Investors who buy put spreads (buy a put and sell a put with a lower strike price) also have a maximum loss of the upfront premium paid The maximum gain from buying put spreads is the difference between the strike prices less the upfront premium paid
Buying strangles Buying strangles (buy put and buy call) The maximum loss is the entire premium paid for both options if the underlying trades between the put strike and the call strike at expiration
Selling strangles or straddles Investors who are long a security and short a strangle or straddle risk capping their upside in the security to the strike price of the call that is sold plus the upfront premium received Additionally if the security trades below the strike price of the short put investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short put and will also experience losses in the security position if they owns shares The maximum potential loss is the full value of the strike price (less the value of the premium received) plus losses on the long security position Investors who are short naked strangles or straddles have unlimited potential loss since if the security trades above the call strike price investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short call In addition they are obligated to buy the security at the put strike price (less upfront premium received) if the security fin-ishes below the put strike price at expiration
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 22
Important information on mutual funds Fees and charges etc Different types of fees and commissions (subscription fee amount which must be retained in trust assets repurchase fee etc) are charged when investment trustsfunds are purchased and sold In addition apart from these fees and commissions trust and management fees and other fees (audit fee trust administrative charges carried interest etc) are charged and borne by you through your trust asset Fees and commissions borne by you will be a sum of these amounts Such fees and commissions vary depending on the investment trustfund and depending on the investment status and therefore we cannot provide specific amounts or calculation methods
For detailed information on fees and commissions etc of each re-spective investment trustfund please refer to the pre-contract documents (prospectus and other supplementary documents)
Important information on dividends bull Dividends are different to interest on deposits and are paid from the net asset value of investment trustsfunds Therefore when dividends are paid the base value (net asset value per unit) will decrease by an amount equivalent to the amount paid
bull Dividends may be paid exceeding the profit earned during the calculation period (trading profit including profits of dividends etc after expenses) In this case the base value (net asset value per unit) on the settlement date in this period will decrease compared to that on the settlement date in the previous period Also the level of dividends does not always reflect the rate of return for the investment trustfund during the calculation period
bull A part or all of dividends may be virtually equivalent to some repayment of the principal depending on the purchase price of the investment trustfund by an investor The same can be applied to a case that an increase in the base value (net asset value per unit) is smaller than a dividend amount due to the investment status after purchase of the investment trustfund
Please refer to the prospectus for details
Explanation of major risks (description pursuant to Ar-ticle 37 (Regulation on Advertising etc) of the Financial Instruments and Exchange Act etc) The risks described below are a summary of some general risks of investment trustsfunds (risks which have an impact on net asset value) and do not cover all risks Please refer to the pre-trade documents (prospectus and other supplementary documents)
Price volatility risk Investment trustsfunds invest mainly in equities bonds and derivative products etc The value of the investment trustfund will go up or down due to increases or decreases in the prices of such investments Further the value of such investments will be impacted by political and economic factors the financial standing of an issuer market demand and supply interest rates and other factors
Foreign currency risk Investment trustsfunds which invest in equities or bonds etc denominated in foreign currencies entail a foreign currency risk and the base value (or net asset value) of investment trustsfunds may change depending on the currency exchange rate Even when you do not experience a loss of invest-ment principal when calculated in the base currency you may suffer a loss at conversion into Japanese yen due to fluctuations in exchange rates Fur-thermore investment trustsfunds which utilize currency trading among multiple currencies may incur costs due to such currency trading depending on the difference in short-term interest rates between the currencies and you may suffer a loss
Credit risk For investment trustsfunds which invest in equities or bonds etc the prices of these investments may increase and decrease due to changes in the business or financial standing of the issuer and other factors and you may suffer a loss
Risk pertaining to liquidity Where there is sudden high volume in a particular investment or when sudden changes in the external environment surrounding markets triggers a sudden downturn in a market or period of market turmoil etc investments may not be flexibly traded In such a case a decline in the price of the investment may impact the base value (or net asset value) of the investment trust result-ing in a loss Further the management company may decide to stop calcu-lation of net asset prices or suspend sell or redemption claims
In addition for certain types of investment trustfund there is a risk that particular investments may be designated to a separate account (or side pocket) due to a lack of liquidity When a separate account is utilized by in-vestment trustsfunds restrictions may apply as to when such investments can be liquidated through a sell or redemption claim and there may be a re-striction in the timing or form of redemption claim permissible In particular for Fund of Fund investments when an investment trustfund makes an in-vestment without time limit in another fund the investment trustfund may be influenced by investment results in the other funds
Risk associated with an outflow of money received from sales orders When there is a large volume of sale orders in a short period of time the investment trustfund may be forced to sell structured securities at a lower rate than the prevailing market price to refund monies to investors and as a result you may suffer a loss Also alternative investment trustsfunds gen-erally have a limitation in selling or cashing out the investment compared to traditional investment trustsfunds Many alternative investment trustsfunds only accept a sell or redemption order on a monthly or quarterly basis and therefore you may not be able to rapidly exit the investment in for example times of economic uncertainty
Redemption risk Investment trustsfunds may become subject to mandatory redemption due to a certain reason For details please refer to the pre-trade documents (prospectus and other supplementary documents) before subscription
Concentration risk Investment trustsfunds which invest in a certain investment product or similar investment product group may significantly decrease in value (net asset value) under severe market circumstances
Country risk When changes in political economic and social conditions in investment destination countries and regions cause a dislocation in financial and security markets security prices may significantly change Also investments in emerging markets involve unique risks including small market size and trade volume political and social uncertainties undeveloped market infrastructure such as a clearing system undeveloped information disclosure system and legal system by supervising authorities large fluctuations in exchange rates restrictions on currency remittance to foreign countries and other factors and therefore may have larger price fluctuations compared to investments in major developed markets
Important information on non-Japanese stocks Please refer to the issuer information when you purchase non-Japanese stocks
Disclaimer This material is published solely for information purposes and is intended for the recipientrsquos sole use Credit Suisse does not represent or warrant its ac-curacy or completeness The material is not directly or indirectly intended for any investment solicitation and does not constitute an invitation or offer to conclude a transaction contract for financial instruments etc Credit Suisse accepts no liability for loss arising from the use of the information in this material It is recommended that you consult with the third party professional advisors as to legal or tax issues etc This material should not be reproduced or quoted without the prior express written consent of Credit Suisse The information and opinions expressed in this material were produced by Private Banking Division at Credit Suisse as of the date of writing and are subject to change without notice Views expressed in respect of particular investment products in this material may be different from or inconsistent with the ob-
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 23
servations and views of other divisions besides Private Banking due to the differences in evaluation criteria This material is solely distributed in Japan by Credit Suisse Securities (Japan) Limited Credit Suisse Securities (Japan) Limited will not distribute or forward it outside Japan
You may incur a loss as a result of fluctuations in stock prices if you invest in stocks In relation to foreign stocks you may incur a loss in such stocks due to foreign exchange rate fluctuations etc The market value of bonds is affected by interest rate fluctuations or changes in the financial standing of any issuer etc as such you may incur a loss if you sell such bonds before they are redeemed In relation to foreign bonds you may incur a loss in such bonds due to foreign exchange rate fluctuations etc The net asset value of mutual funds can fall as well as rise due to price changes of underlying stocks bonds etc and foreign exchange rate fluctuations and this may cause you to incur a loss
Structured securities and derivatives are complex instruments 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 of any structured security or transaction may be affected by changes in financial market conditions reference indices volatility and the credit quality of any issuer or reference issuer
Furthermore there are structured securities on which you may incur a loss since the redemption amounts are linked with fluctuations in reference indices etc There are also derivatives on which potential losses may exceed the amount of the initial investment Commission rates for any transactions will be as per the rates agreed between Credit Suisse and you For transactions conducted on a principal to principal basis between Credit Suisse and you the purchase or sale price will be the total consideration Transactions con-
ducted on a principal to principal basis including over the counter derivatives transactions will be quoted as a purchasebid price or selloffer price and for which a difference or spread may exist Charges in relation to transactions will be agreed prior to dealing as per our requirements under the Financial Instruments and Exchange Law
By purchasing financial instruments etc you may incur a loss or a loss in excess of the principal as a result of fluctuations in market prices or other financial indices etc Please read carefully the Pre-Contract Documentation provided for an explanation of associated risks and commissions etc of individual financial instruments etc prior to purchase Please contact your Relationship Manager if you have any questions
UNITED STATES NEITHER THIS REPORT NOR ANY COPY THEREOF MAY BE SENT TAKEN INTO OR DISTRIBUTED IN THE UNITED STATES OR TO ANY US PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE US SECURITIES ACT OF 1933 AS AMENDED)
Credit Suisse Securities (Japan) Limited Financial Instruments Dealer Di-rector-General of Kanto Local Finance Bureau (Kinsho) No 66 a member of Japan Securities Dealers Association Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association
Copyright copy 2021 Credit Suisse Group AG andor its affiliates All rights reserved
21C013A_IS_J
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 24
Imprint
Publisher Credit Suisse Private Banking amp Wealth Management Investment Solutions amp Products
Information about other Investment Solutions amp Products publications Internet httpsinvestmentcredit-suissecom
Intranet (for employees only) httpsisrcsintranet
Subscription (clients) Please contact your customer advisor to subscribe to this publication
Subscription (internal) For information on subscriptions please visit httpisrcsintranetsubscriptions
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 25
Excessive urbanization which has contributed to the spread of infection will stall and this will provide an opportunity to rebuild urban infrastructure
Efforts to reduce socioeconomic disparities are also likely to gain momentum These efforts represent just the start of a push to prevent societies and economies from fragmenting in the face of a pandemic
ESG investment Growing interest in a sustainable so-ciety After the 2008 Global Financial Crisis the world became more aware of the pitfalls of short-term profit-seeking As a result many pension funds and investment institutions have become more supportive of the Principles for Responsible Investment (PRI) as promulgated by the United Nations There is now greater focus on working toward realizing a sustainable society which has led to changes in corporate behavior like improved governance As politicians are also aggressively moving toward measures to promote a sustain-able society a slew of new regulations relating to environmen-tal social and governance (ESG) have been introduced As a result ESG investment is gaining attention as a long-term investment theme and increasingly influencing stock prices
Increasing equity investment Bond investment returns have declined in the current pro-longed low interest rate environment On the other hand the amount of available investible funds is likely to increase due to the easy monetary policy while demand (for bonds) from pension funds is likely to trend higher on account of growing liabilities as the population ages
Long-term changes in global social and economic structures provide investment opportunities in various markets and businesses This will lead to a rise in investor allocations to related stocks and alternative investments
Focus shifts to corporate bonds As returns on government bond and other safe bond invest-ments have decreased considerably in this low interest rate environment investors have moved to more credit-related instruments However the interest rate spread on credit is shrinking gradually Therefore as part of our updated perspec-tive we are focusing on corporate bonds that are denominated in major currencies and are issued by emerging market (EM) companies EM companies are also expanding the scale of their operations and many have stable cash flow The high growth potential of Asian companies makes them an attractive investment target for investors seeking yield
Recommended investment strategies
Investors have learnt an important lesson from the unprece-dented pandemic They are now accustomed to the ldquoGreat Moderationrdquo and conscious of hedging their risks We believe the market has rediscovered the significance of global asset diversification as part of a strong long-term investment strat-egy
Strategies related to prolonged policy support mea-sures With ultra-loose monetary policy likely to be in place for an extended period investors should look to alternative strategies designed to increase yield Every investor will have a greater need to look for investments that convert an acceptable level of risk into yield This includes range-trading in currency markets where interest rate differentials are narrowing and the risk of large fluctuations is receding
Stocks that fit in with long-term themes that are expected to benefit from the transition to a new economic system post-COVID-19 continue toremain attractive Gold is also likely to continue to attract attention as a risk hedge
Strategies for the onset of the economic recovery As the economy recovers while interest rates remain low in-vestment in credit (corporate bonds) will become attractive In particular Asian countries that have been successful in controlling the spread of infection and dollar-denominated bonds issued by companies in this region may constitute an effective strategy for seeking yield
The economic recovery and changing consumption styles are likely to increase investor interest in economically sensitive value stocks as well as stocks of companies that fit in with new market landscape As companies become more aggres-sive in mergers amp acquisitions (MampA) and other investments to reform their business structure private equity too can be an interesting investment option
Accelerating changes related to the pandemic Investment opportunities provided by receding globalism Political commitments designed to deal with Japanrsquos social fragmentation are expected to provide long-term invest-ment opportunities We now focus on strategies including infrastructure investment funds private equity and the long-term themes discussed in a Supertrends series report
Investment lesson ndash increased awareness of risk hedging A growing awareness of the importance of risk prepared-ness is expected to lead to greater global asset diversifica-tion as part of a long-term investment strategy This is because such a strategy can be expected to effectively stabilize returns without incurring a high additional cost
Investment themes related to the advent of a new digital society The pandemic has changed the way people inter-act with each other on a socioeconomic level considerably This has accelerated the rate of digitalization across the economy Our Supertrends series reports explore a number of related investment themes and strategies
Investment opportunities related to full-scale efforts to improve sustainability The world as a whole is now more amenable to accepting the costs of improving sustainability One of the best examples is efforts to create a carbon-free society The adoption of investment metrics that incor-porate an awareness of ESG will also increase Additionally our Supertrend ldquoClimate changerdquo encompasses pertinent investment ideas
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 4
Reaffirming the appeal of Supertrends Examining tail risk Uncontrollable inflation and rising After the pandemic our society is changing at an accelerating pace Our long-term investment themes called Supertrends can be a suitable option for the prudent investor in such times
interest rates In response to the pandemic global debt has ballooned to unprecedented levels Thanks to historically low interest rates the burden of this debt is sustainable However investors should be aware of related risks Uncontrolled inflation and a sharp rise in interest rates may continue to be a tail risk for the market (17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 5
Japan asset allocation
Review of our portfolio allocations The annual review of our Strategic Asset Allocation leads us to reduce our allocation to bonds in portfolios and increase allocations to equities and alternative investments
Soichiro Matsumoto Investment map (regions vs asset classes) Chief Investment Officer Japan
Annual review of our Strategic Asset Allocation Every year Credit Suisse updates its macro market forecasts (risk and return potential) for the next five years and publishes these forecasts in the form of our Capital Market Assumptions (CMA) Based on the new CMA we have review and update our our medium-term asset allocation benchmarks also known as our Strategic Asset Allocation (SAA)
For our 2021 SAA the allocation to bonds has decreased due to lower expected returns while our allocations to equities and alternative investments have increased Source Credit Suisse
(16022021)
JPY international tactical asset allocation (TAA balanced) Balanced TAA Vs benchmark Benchmark SAA 2021
January February Change January February
Liquidity 20 40 20 -30 -10 50
JPY 20 40 20 -30 -10 50
Fixed income 465 315 -150 -10 -10 325
JPY 25 35 10 -15 -05 40
Global corporates 330 180 -150 -15 -15 195
Global high yield 30 30 00 00 00 30
Emerging markets bond USD 40 30 -10 10 00 30
Emerging markets USD corporate 00 40 40 NA 10 30
Equity Emerging markets bond LC 40
445 00 520
-40 75
10 20
NA 20
00 500
Japan 155 180 25 -10 -10 190
World (ex Japan) 290 340 50 30 30 310
Switzerland 05 05 00 00 00 05
Eurozone 25 25 00 00 00 25
North America 125 150 25 00 00 150
United Kingdom 20 20 00 10 10 10
Australia 05 05 00 00 00 05
Emerging markets 50 60 10 20 20 40
LatAm 00 00 00 00 -05 05
APAC 45 50 05 20 20 30
EMEA 05 05 00 00 00 05
Supertrends 60 75 15 00 00 75 Alternative investments 70 125 55 20 00 125
Real estate Japan 25 25 00 00 00 25
Hedge fund 00 25 25 NA 00 25
Private equity 00 75 75 NA 00 75
Commodities 45 00 -45 20 NA 00 Total 1000 1000 00 00 00 1000
Source Credit Suisse
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 6
Supertrends
Supertrends Investmentsolutions In this installment we focus on the ldquoClimate changerdquo Supetrend and suggest investment solutions from sectors that can contribute significantly to reducing greenhouse gas emissions as well as mitigating long-term impacts of global warming
Maki Shimizu Investment Strategist - Japan Strategy
Policy tailwinds The ldquoClimate changerdquo theme is strongly influenced by policy factors hence we expect the recent change of government in the USA to lead to renewed interest in environmental policy issues On his first day in office last month US President Joe Biden announced his countryrsquos return to the Paris Agreement ndash an international framework for combating global warming ndash and began to shift policy course from the previous adminis-tration On environmental issues it may be difficult to reverse the international communityrsquos distrust and skepticism of the USA brought about by the ldquoAmerica Firstrdquo approach of the past four years However shifting to renewable energy sources is one of the major policy targets of President Biden and international cooperation on this issue will likely be gen-uinely welcomed
Currently countries that have ratified the Paris Agreement are struggling to meet their targets for reducing emissions by 2050 As policy support increases business opportunities related to environmental policy are likely to expand at the private sector level Here we focus on sectors that fall under this Supertrend because of their ability to contribute signifi-cantly to reducing greenhouse gas emissions and mitigating long-term impacts of global warming
Investment solution features A common catchphrase for all four sub-themes associated with this Supertrend is ldquosustainable energy supplyrdquo With the Paris Agreementrsquos goal of ldquocarbon neutralityrdquo in mind we look for investment opportunities arising out of a structural transformation in the energy sector via carbon-free electricity sustainable transportation pioneering oil and gas energy conversion and agriculture and food sub-themes We high-light climate change-related companies that primarily develop renewable energy and provide energy storage technologies
Besides companies that are likely to see continued growth via the long-term shift in energy policy we highlight others that are likely to reform the agriculture sector by incorporating automation in their production processes Additionally we highlight related entries from our environmental social and
governance (ESG) related stock list (ESG Top 25) that were discussed in the recent Supetrends report In mutual funds in addition to the Global Security Fund we offer solutions that enable investment in areas related to rising climate change awareness from an ESG perspective
(17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 7
Supertrends
Theme Detail Recommended solution
Anxious societies ndash Inclusive capitalism
AM One Global Security Stock Fund CS Beneficiaries of Anxious Societies Selection
Affordability Basis goods such as housing healthcare and pension have become unaffordable for many people
Employment Skilling reskilling and upskilling are crucial steps as technical progress radically changes required skill set
Personal security Everyday challenges such as the pandemic outbreak or cybersecurity are the most important pain points for people
Infrastructure ndash Closing the Global Core Infrastructure Stock gap Fund CS Infrastructure List
Transport Developed markets have to invest in project replacements while emerging markets continue to spend on growth
Energy amp water Energy transition toward renewables to limit global carbon emission Middle East faces an acute water shortage
Smart cities As 68 of the worldrsquos population will live in urban areas by 2050 cities must become smarter to handle this strong growth
Telecom infrastructure As 5G will be the next major investment cycle for the mobile industry mobile traffic may grow almost five-fold
Technology at the service of AM One Global Security Stock humans Fund CS Technology Selection
Digitalization The number of connected devices is surging and thus edge computing is expected to gain traction in order to capture even more value from data
Virtual reality Growing to the size of todayrsquos smartphone market in the years ahead
Artificial intelligence (AI) Material growth potential for home industries and cities digitalization and healthtech and fintech markets
Industry 40 Robots and automation are entering various non-industry sectors demand for industry robots is rising
Healthtech Digitalization solution biotechnology and AI in product development and healthcare research Silver economy ndash Investing for Select Sector SPDR ETFs (Health-population aging care Consumer Staples Consumer
Discretionary) CS Silver Economy Stocks
Therapeutics amp devices Biopharma and medical device companies to innovate around senior conditions such as heart disease amp cancer
Care amp facilities Managed care organizations hospitals and dedicated facilities to face increasing demand
Health amp life insurance Private pension gap in emerging markets and growing importance of private pension fund amp insurance solutions
Senior consumer choices High spending power of seniors to benefit consumer companies with senior-centric offerings Millennials values AM One Global Security Fund CS
Millennials Favorites
Sustainable business and invest- ESG overlay across the entire millennials stock universe to underpin the importance of sustainability ments
Digital natives Being connected 247 having a strong preference for technology brands driving an education technology revolution
Fun health amp leisure A new way of living and spending with substantial growth potential in emerging markets Climate change AM One Global Security Fund CS
Climate Change Choice ESG Top 25 promotion list
Carbon-free electricity CO2-neutral electricity production and the replacement of coal-fired electricity as a key component of CO2 reduction
Oil amp gas transition pioneers Demand for fossil fuel remains high for now while the transition pioneers will be leading the sector
Sustainable transport Sustainable fuels a switch to electric vehicles more efficient engines and railroads will reduce greenhouse gas (GHG) emissions
Agriculture amp food A growing population and a high CO2 emission from the agriculture sector require efficiency gains
Source Credit Suisse
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 8
Economics
Positive growth outlook beyondwinter soft patch After a likely soft patch in the winter months we expect very strong growth this year
The main risk to our near-term forecast is new virus strains that may necessitate further shutdowns
James P Sweeney Chief Economist and Regional CIO Americas
Peter James Foley Economist
Global growth rebounded strongly in the second half of 2020 We expect a winter soft patch most noticeable in Europe as viral contagion leads to mobility restrictions that hamper service sector activity Beyond that the growth outlook is very positive
Global demand has recently been propped up by developed market households Real retail sales in developed economies have exceeded pre-pandemic levels since September and are now above the long-term trend Business investment has risen too but not as much as consumption The onus is on business investment to drive the recovery further
A dominant feature of the pandemic economy has been the contrast between goods demand which has recovered sharply and services demand which has suffered due to social distancing The divergence is likely to unwind this year as spending that was redirected to goods in 2020 returns to services in 2021 Services consumption in developed market economies is about twice as large as goods consumption and is likely to increase strongly this year as vaccine rollouts support an expansion of activity
In that sense consumer spending on services might substitute some goods spending But at the same time a resurgent service sector may give further tailwinds to the goods sector through business spending
Uncertainties about variants vaccines and stimulus COVID-19 infections are falling in Europe and the USA But new highly contagious strains risk new or extended shut-downs which are the main downside risk to our near-term forecast
Vaccine rollout has not been smooth but the USA and UK will likely vaccinate a sufficient share of their populations by this summer that a strong services recovery is likely Europe and other major economies lag behind which may mean longer restrictions on activity Normalization appears to be out of reach before Q3 in large economies but vaccinations will support increased mobility
The USA is likely to pass another pandemic stimulus bill soon It will likely cost at least half the USD 19 tn price tag of the original plan but even this reduced size will substantially affect the US growth outlook Direct checks to households will im-mediately boost consumer spending and increase household savings further
There is less uncertainty over Eurozone policy support but it may not be forceful enough Europersquos fiscal policy so far has focused on mitigation rather than stimulation But this means that as the economy recovers fiscal support will fade meaning limited upside to growth The European Central Bank has stated it can ease policy further but it is unclear whether this will boost lending in the real economy
Last yearrsquos contraction in the Eurozone was larger than in the USA But the rebound is likely to be weaker We expect Eu-rozone GDP to grow 50 in 2021 while US GDP should grow 57 (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 9
Global investment strategy
Retain preference for EM equities Continued fiscal and monetary policy support and an easing of the pandemic should help Western economies see strong growth in the second half of the year
We retain a cyclical tilt in portfolio allocations through overweight positions in equities with a preference for EM equities and commodities
Philipp Lisibach Chief Global Strategist
The Credit Suisse Investment Committee (IC) has reduced emerging market hard currency (EM HC) sovereign bonds to strategic allocations and changed the return outlook for devel-oped market investment grade (IG) bonds from attractive to neutral Equity allocations are kept at overweight with a continued preference for emerging markets The BCOM also remains at overweight
Reflation expected to support cyclical assets Even though the pandemic continues to weigh on economic activity falling infection rates and hospitalizations alongside vaccine rollouts should allow economies to reopen In combi-nation with continued fiscal and monetary policy support Western economies are likely to see exceptionally strong growth in the second half of 2021 The USA is currently benefiting from a second relief package which is likely to be followed by a third one soon adding fuel to the expected concerted recovery
As such the IC keeps a cyclical bias in portfolio allocations expressed by overweights in equities and the broad commod-ity index (BCOM) In equities we continue to express a pref-erence for emerging markets specifically Chinese equities which show strong price momentum having outperformed global equities since the start of the year Although China has initiated policy-tightening measures we think it will take these steps in a controlled manner without risking denting market sentiment
Risk of inflation scare mitigated by central bank com-mitments Besides the risk that new virus strains with potential resistance to vaccines may fuel market concerns markets could start consolidating in coming months should a rise in US inflation
due to base effects lead to an inflation scare Although we think that such an inflation increase will be temporary uncer-tainty about the outlook for the second half is elevated due to the expected strong growth and likely supply-side bottle-necks as economies reopen To mitigate this risk the contin-ued commitment by central banks above all the US Federal Reserve (Fed) to keep financial conditions easy will be key Recent comments by Fed Chair Powell stressing patience and suggesting that the economy is far from overheating give us confidence that this key market support will stay in place For real assets such as equities and commodities this should continue to prove beneficial
Tight credit spreads Although the anchoring of treasury yields for shorter maturities via central banksrsquo rate guidance should prevent a sudden surge in longer-dated yields we expect them to grind higher as growth momentum builds Thus performance is expected to continue to suffer and the IC is keeping government bonds at underweight Due to tight IG credit spreads the IC has reduced the return outlook for IG from attractive to neutral For EM HC sovereign bonds we take profit on our successful overweight and cut portfolio allocations back to strategic levels as spreads have eroded Investors should find more value in EM HC corporate as well as selected EM local sovereign bonds Despite some USD consolidation at the start of this year the USD is likely to continue its weakening trend against other major currencies in coming months
Watch a video featuring the highlights of the Credit Suisse investment strategy wwwcredit-suissecomciofilm
(15022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 10
Special topic
ESG Integrated Investing according to environmental social and governance (ESG) criteria is in the process of becoming mainstream
Combining the House View with ESG convictions ldquoESG Integratedrdquo is a set of best ideas for investors to gradually transition to multi-asset portfolios that perform solidly both on traditional financial performance metrics and on ESG metrics ldquoESG Integratedrdquo is part of our Signature Convictions
Nannette Hechler-Faydherbe Chief Investment Officer ndash International Wealth Management
Jessie Gisiger Head of Credit Strategy and Investment Themes
Green transitions are at the heart of the fiscal spending and recovery plans put in place in response to the COVID-19 pandemic Against this backdrop strong regulatory momen-tum and fiscal ambitions in the USA Europe and China have only added to a global trend toward integrating ESG criteria at every level of economic activity
There is growing evidence that adhering to ESG criteria not only helps to mitigate our impact on climate change but also supports financial risk-reward for several reasons First be-sides increasing transparency and awareness ESG filters help keep in check the risk of heightened regulatory scrutiny that non-ESG-compliant business practices increasingly face Second ESG factors can impact financial business conditions such as the incurred cost of capital Focusing on good gover-nance and keeping an eye on regulatory risk are equally likely to be beneficial when considering default risk in the corporate bond market Third there are strong investment themes emerging from the policy support currently developing espe-cially in climate change to achieve net-zero carbon emissions by 2050
Signature Convictions ESG Integrated Combining key elements of the Credit Suisse House View with thematic priorities in ESG investing that emerge from these catalysts we have developed a set of best ideas (see table) that can help investors gradually transition their invest-ments toward multi-asset portfolios that perform solidly on both traditional financial performance metrics as well as ESG metrics
In fixed income ESG emerging market corporate bonds and ESG subordinated bonds offer investors an avenue to earn a yield pick-up but at a lower risk of credit spread widening than the broader index Empirical assessments have also shown that companies with higher ESG scores tend to have a lower probability of default Investors looking for an equiva-lent to money-market instruments may consider impact invest-ments which deliver low single-digit returns with limited vola-tility
In equities we highlight the Supertrends climate change and sustainable infrastructure as two key ESG-related themes that are focused on decarbonizing economic activity and are catalyzed by global regulatory momentum For investors looking for single-stock investments our Credit Suisse ESG Top 25 list includes stocks from our high conviction list that are in category 3 (ldquoESG awarerdquo) or category 4 (ldquoThematicrdquo) of our Credit Suisse ESG classification framework
Investors who would like to invest according to our preference for EM equities also have the option of doing so in an ESG-compliant manner through the MSCI Emerging Markets ESG Leaders Index That index has on average outperformed the MSCI Emerging Markets Index since 2008 This outperfor-mance can be explained by the MSCI Emerging Markets ESG Leaders Indexrsquos higher exposure to growth sectors and strong orientation to new economy sectors that benefit from powerful structural growth drivers Separately green real estate is likely to lead to higher occupancy rates and a lower probabil-ity of income loss resulting in a more stable income stream
For investors looking to alternative investments for further diversification impact private equity sustainable alpha hedge fund and carbon emission allowance futures are also interest-ing
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 11
Signature Convictions ESG Integrated
Source Credit Suisse
(16022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 12
Special topic
Bullish hopes in Chinarsquos Year ofthe Ox Our positive view on equities remains in place We express it through a preference for emerging market particularly Chinese equities
After strong gains so far this year we challenge the quality and longevity of Chinarsquos bull market and explain why we remain optimistic
John William Huia Woods CIO APAC
Just ahead of Chinese New Year Chinarsquos benchmark Shanghai Composite Index surged to new highs for the year Chinarsquos strong market gains are fueled by a rush of excess liquidity the likes of which we have not seen since 2015 But experienced investors will know that a rising tide can just as easily ndash and quickly ndash turn into an ebbing tide particularly when fundamentals become unsupportive
Red flags In fact red flags are not hard to find Possibly the most im-portant observation is that Chinarsquos growth momentum has passed its peak and will likely decelerate into 2021 A decel-erating economy does not necessarily hurt a bull market but it does not necessarily help it either
Equally important is the view that Chinarsquos ndash increasingly less dovish ndash authorities are unlikely to further stimulate the economy It has been widely observed that they remain vigilant and concerned toward the possible formation of price bubbles in real and financial assets including equity markets
Indeed the Peoplersquos Bank of Chinarsquos willingness in late January 2021 to withdraw rather than add CNY 570 bn of liquidity from interbank markets ahead of the Chinese New Year suggests that a clear inflection point has been reached with monetary policy now normalizing after two years of stimulus and easy money
Amid decelerating economic growth corporate revenues are under pressure meaning analyst earnings revisions are flat-lining and thus failing to keep pace with more vibrant emerging andor developing markets In absolute terms weaker earn-ings exert upward pressure on valuations Yet a liquidity-driven rally can still push valuations higher
Imbalance The liquidity-centric imbalance at the heart of Chinarsquos bull market leaves it exposed and vulnerable to correction in our opinion An environment of tightening monetary policy decel-erating growth and stretched valuations are generally not conducive to sustained price appreciation In fact in Chinarsquos case incrementally greater inflows of liquidity will be required to sustain existing price levels At least from an onshore per-spective the music will stop
Intriguingly attention is now turning to foreign investor inflows which hitherto have been muted But there are reasons why a rebound in sentiment might be expected including improving geopolitical sentiment with the new administration in the USA and expectation of CNY appreciation which should boost returns for USD investors Overall a reacceleration in flows could be a key factor in keeping Chinese markets supported
Sound diversification is key On balance at least for the next few months we remain overweight Chinese equities in a portfolio context Our funda-mental concerns are medium-term in nature while near-term risks ndash supported by liquidity ndash are tilted toward further price gains In line with our House View we emphasize the value of well-diversified exposure to EM equities overall
(15022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 13
Fixed income
EM HC corporate bonds preferred The ongoing reflationary path is going to support long-dated yields warranting a con-tinued cautious stance on government bonds
We reduce our allocation to EM HC sovereign bonds to benchmark weight We no longer see IG credit as attractive and prefer EM HC corporate bonds
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
Global benchmark yields have continued to trend higher in the last few weeks supported by reflationary expectations Despite the marketsrsquo repricing of more US fiscal stimulus the Federal Reserve (Fed) kept control of front-end rates expectations with the US yield curve further steepening as a result Going forward long-dated inflation expectations are still expected to be the main driver of nominal benchmark yields Both should moderately rise in tandem particularly in the USA With other developed regions following the same reflationary theme albeit with a lag we anticipate that global government bonds will remain an unattractive investment We therefore keep exposure below benchmark allocations in portfolios Furthermore we keep a relatively short duration stance in US Eurozone and Swiss bond markets and prefer US inflation-linked bonds over comparable nominal govern-ment bonds
IG credit no longer attractive prefer EM HC corporate bonds We no longer think that global investment grade (IG) credit offers attractive return potential While monetary policy re-mains supportive IG spreads are already at historical lows and no longer offer enough compensation against the further rise in benchmark yields we expect Global high yield (HY) credit market returns should remain attractive thanks to policy support and the economic recovery we project However we
see limited further spread compression potential in US HY and European HY from the current historical lows We believe emerging market hard currency (EM HC) corporate bonds are most attractive within credit with pro-cyclical emerging markets benefiting from the global growth rebound expected this year At the same time and due to their comparatively low benchmark duration EM HC corporate bonds are less sensitive to higher US government yields than global IG EM HC corporates on average provide similar credit fundamentals to developed market credit but offer more attractive spreads amid the current reflationary environment Also we see more opportunities in EM HC HY corporates particularly in Asia where spreads offer a premium of around 200 bp over US HY
EM HC sovereigns reduced to benchmark allocation EM HC sovereign bond valuations are currently tight with spreads not far off the lows reached after the great financial crisis Inflation has largely bottomed out due to base effects food and energy prices and there is limited scope for further monetary stimulus EM HC sovereign bond spreads have a high correlation with US Treasury yields With the latter still on the rise risks to EM HC sovereign bonds are increasing Positioning is at record highs and flows continue to acceler-ate This suggests that a further strong performance is less likely Given these considerations we have decided to reduce EM HC sovereign bonds to benchmark allocation in our portfolios (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 14
Equities
Remain constructive on globalequities We maintain our attractive return outlook for global equities with a preference for emerging markets UK Germany financials materials and health care
After a double-digit earnings decline in 2020 global earnings are set to recover sharply this year
Marc Haumlfliger Global Equity Strategist
We maintain our attractive return outlook for global equities on the back of supportive monetary conditions vaccine roll-outs growing stimulus prospects and our constructive outlook for economic and earnings growth While traditional valuation metrics remain elevated they look less stretched relative to other asset classes such as global treasury bonds The earnings recovery is key to our thesis of attractive returns for global equities as we do not expect further re-ratings (ie higher multiples) to drive equity markets going forward So far the Q4 earnings results underpin our view that companies have learned how to deal with the current circumstances given earnings results are mostly surpassing projections As a result of this strong showing global EPS growth rates (YoY) will likely be positive again for the Q4 2020 earnings season After an overall double-digit earnings decline in 2020 global earnings are set to recover sharply this year ndash particularly in cyclical market segments Risks to our constructive view on equities come from COVID-19 concerns (mutation potential vaccine disappointments) disappointing fiscal stimulus or earlier-than-expected comments about a withdrawal of mon-etary stimulus
In a portfolio context we keep our overweight in emerging market (EM) equities as we remain bearish on the USD ex-pect higher commodity prices and see the re-opening environ-ment as positive for EM equities We expect cyclical segments that lagged the broader equity benchmark in 2020 ndash such as the UK Germany and financials ndash to catch up amid the im-proved economic outlook and rising inflation expectations
Latest view changes In developed market equities we turn neutral from outperform on Hong Kong equities as a result of their strong performance in recent weeks and increasing macro headwinds In EM eq-uities we now expect South African equities to outperform driven by attractive valuation a strong earnings picture and an accommodative central bank We no longer expect Indian equities to underperform and turn neutral following the gov-ernmentrsquos pro-growth budget announcement an improved macroeconomic outlook and earnings estimates being revised higher at a faster pace than peers
Earnings expected to recover in 2021
Last data point 09022020 Historical performance indications and financial market
scenarios are not reliable indicators of current or future performance Source Factset
Estimates Credit Suisse
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 15
Alternative investments
Still positive on commodities Commodity performance has been strong year-to-date A near-term pause is possible but we retain a positive view and prefer diversified exposure with a cyclical bias
Despite recent resilience we expect listed real estate to lag equities In hedge funds we highlight opportunistic long-short discretionary and EM macro managers as well as private credit
Jelena Kucenko Head of Alternative Investments
Stefan Graber Head of Commodity Strategy
Hedge funds Be selective Hedge funds were flat in January as short covering activity at month-end erased initial gains Fundamental long-short and macro funds suffered the most while relative value and event driven were more resilient Our Trading Conditions Barometer is in favorable territory Combined with regional and sector divergences arising from vaccine rollouts compli-ance with environmental social and governance criteria and record levels of capital-market activity this creates opportuni-ties for long-short managers We also highlight private credit strategies with a focus on consumer loans and mid-market companies which should benefit from resilient household fi-nances and a post-pandemic recovery Discretionary and emerging market (EM) macro managers are preferred in case of market setbacks
Commodities Providing cyclicality and inflation hedge Commodities started 2021 on a strong note focusing on positive growth expectations instead of near-term COVID-19 concerns A near-term pause is possible as the latest gains came ahead of an anticipated reacceleration in industrial ac-tivity That said improved bottom-up fundamentals have flipped aggregate curves into backwardation translating into positive roll yields which may attract additional investor inter-est Commodities also provide a hedge should inflation sur-prise to the upside We retain our positive view on the asset class and favor diversified exposure with a cyclical tilt (oil energy) For oil the March OPEC+ meeting is the next event
risk and a potential source of volatility as the group will likely discuss supply hikes We still think that gold offers diversifica-tion and some upside but the bull run could be maturing as yield curves have started to steepen We thus tone down our optimism on the metal
Real estate Expected to underperform equities Listed real estate slightly outperformed global equities in January thanks to strong earnings results in logistics and a rebound in oversold retail companies as short sellers covered their positions But we believe that further upside potential for the sector is limited as the impact of lockdowns is not yet reflected in landlordsrsquo share prices in our view Additionally valuations in structurally resilient sectors such as logistics and data centers already reflect fundamentals This and the prospect of higher long-term yields and an increased risk of US regulatory headwinds reinforce our negative sector view
Private equity Backdrop still positive Robust investment activity at the end of last year pushed pri-vate equity deal values higher but the asset class still offers better priced opportunities than public markets Dry powder ndash committed but uninvested capital ndash is at a record of over USD 2 trn with subdued fundraising activity expected to re-bound as investors increase commitments in 2021 according to data provider Preqin The expected economic rebound is supportive for the asset class but rising long-term interest rates pose risk to financing costs We highlight strategies offering high growth with limited leverage (venture capital growth capital) and secondary funds which can exploit market opportunities tactically generating excess returns over time
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 16
Foreign exchange
Keep favoring cyclical currencies We maintain a short USD bias and prefer commodity and cyclical currencies such as the EUR GBP or SEK
Within our positive emerging market stance we particularly like the CNY KRW BRL and RUB
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
The USD was broadly flat against other major currencies over the last month Investorsrsquo focus on US fiscal stimulus and an expected rise in US inflation allowed for some normalization in previously large USD short positions While the repricing of near-term growth expectations also in light of a more rapid US vaccination campaign created temporary USD resilience we think this improvement is likely partly reflected in the USD already We maintain that as the Federal Reserve (Fed) keeps short-term rates close to zero for longer there is little room for sustained gains in the USD Moreover US fiscal stimulus will not only deteriorate fiscal balances but also deepen the current account deficit This will also benefit the global econ-omy through improved global trade and sentiment which should weigh on the USD Uncertainties relating to new COVID-19 variants and extended USD short positioning re-main a risk in the short term
Constructive on cyclical currencies A slow start to vaccine rollouts and renewed political risks in Italy somewhat dented sentiment toward the EUR in early February Even so the single currency remained stable vs the USD The Eurozone is facing a delayed recovery but this is consensus already and likely temporary in nature With political risks now subsiding the EU recovery fund operational in the next quarter and the global growth recovery benefitting the export-oriented Eurozone we think EURUSD can gain some further ground and target 124 in 3M Elsewhere in Europe we also remain positive on the SEK and the GBP
vs the USD With global reflation set to continue and com-modity prices likely to remain supported through the ongoing rebalancing we still favor commodity currencies in particular the NZD CAD and NOK
BRL RUB CNY and KRW preferred Emerging market (EM) currencies were broadly range-bound on an index level over the last month but with significant re-turn dispersion across currencies The main arguments sup-porting our attractive view on EM FX remain in place We continue to see further scope for a broad appreciation of EM FX versus the USD Even though the EM economic recovery has peaked economic activity still looks solid relative to de-veloped markets External positions remain in good shape and non-resident flows are still supportive In addition with inflation bottoming and food prices increasing scope for dovish EM central bank surprises seems to be exhausted This should be favorable for EM carry versus the USD
The RUB BRL CNY and KRW remain our preferred curren-cies in EM Both the RUB and BRL are cheaply valued Addi-tionally the RUB should profit from attractive risk-adjusted carry and the BRL from more hawkish central bank expecta-tions In Asia we remain positive on the CNY and KRW and neutral on the other Asian FX We lower our 3M USDCNY target to 635 but keep our 12M target at 625 Our USDKRW targets remain unchanged at 1060 and 1010 in 3M and 12M respectively We retain a mild downward bias on the other USDAsia pairs expecting broad USD weak-ness (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 17
Forecasts
At a glance More information on the forecasts and estimates is available Credit Selected indices on request Past performance is not an indicator of future
Yield Spread Duration 3M TR 12M TR fore-performance Performance can be affected by commissions () (bp) (years) forecast cast fees or other charges as well as exchange rate fluctuations BC Global Aggregate 091 33 731 -010 010
BC Global Treasuries 058 9 862 -030 -050
BC Global IG Corp 141 94 735 033 130 Central bank rate10-year government bonds BC Global HY Corp 429 378 416 062 247
CB rate 10Y JPM EMBI Global Di- 480 344 764 032 126 yield versified HC
in Spot 3M 12M Spot 3M 12M
CHF -075 -075 -075 -026 -030 -030 BC = Barclays Capital IG= Investment Grade JPM = JP Morgan (EMBI+) Index data as of 1522021 Forecast as on 1522021
EUR -050 -050 -050 -035 -030 -030 These forecasts are no reliable indicators of future performance Source Bloomberg
USD 013 000-025 000-025 130 140 150 Credit Suisse GBP 010 010 010 062 050 060
AUD 010 010 010 139 130 140
JPY -010 -010 -010 010 010 010 Foreign exchange
Spot 3M 12M Spot rates are closing prices as of 1622021 Forecast date 1122021 These
EURUSD 121 124 125 forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC USDCHF 089 087 088
EURCHF 108 108 110
USDJPY 10594 10200 10000
Equities EURGBP 087 087 086
GBPUSD 139 143 145 Index Spot PE Div y 3M 12M () AUDUSD 078 078 079
MSCI AC World 1679 202 22 1690 1790 USDCAD 126 123 120
US SampP 500 3933 234 21 3950 4150 EURSEK 1004 1010 1020
Eurostoxx 50 3726 181 26 3700 3850 EURNOK 1016 1020 1020
UK FTSE 100 6749 143 43 6700 7000 EURPLN 449 457 459
Japan Topix 1965 185 21 1940 1970 USDCNY 646 635 625
Australia SampPASX 6917 207 38 6900 7150 USDSGD 132 131 128
200 USDKRW 109898 106000 101000
Switzerland SMI 10908 186 28 10950 11400 USDINR 7264 7270 7200
MSCI Emerging Mar- 190621 166 22 194000 207000 USDBRL 538 525 530 kets USDMXN 1994 2050 2150
Prices as of 1622021 Forecast as on 1122021 Gross return (incl dividends) Spot rates are as of 1722021 These forecasts are no reliable indicators of future performance Source Bloomberg These forecasts are no reliable indicators of future performance Source Bloomberg Datastream Credit SuisseIDC Credit SuisseIDC
Commodities Real GDP growth and inflation Spot 3M 12M GDP Inflation
Gold (USDoz) 1793 1900 2000 growth
Silver (USDoz) 273 27 30 in 2020 2021 2022 2020 2021 2022
Platinum (USDoz) 12624 1300 1250 CH -32 35 20 -07 03 02
Palladium (USDoz) 2390 2400 2500 EMU -72 50 42 03 06 10
Copper (USDton) 8416 8300 7900 USA -35 57 35 12 20 21
WTI Crude Oil (USDbbl) 600 60 60 UK -100 53 75 09 14 18
Bloomberg Commodity index 1815 181 186 Australia -20 35 32 08 15 15
Japan -49 17 19 -02 01 03
Spot rates are as of 1722021 forecast as on 1122021 China 23 71 52 25 11 17 These forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC Last forecast update 10022021
These forecasts are no reliable indicators of future performance Source Bloomberg Credit Suisse
(17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 18
Glossary
Risk warnings
Emerging markets Emerging markets are located in countries that possess one or more of the following characteristics a certain degree of political instability relatively unpredictable financial markets and economic growth patterns a financial market that is still at the development stage or a weak economy Emerging market investments usually result in higher risks as a result of political economic credit exchange rate market liquidity legal settlement market shareholder and creditor risks
Hedge funds Regardless of structure hedge funds are not limited to any particular investment discipline or trading strategy and seek to profit in all kinds of markets by using leverage derivative instruments and speculative investment strategies that may increase the risk of investment loss
Commodity investments Commodity transactions carry a high degree of risk and may not be suitable for many private investors The extent of loss due to market movements can be substantial or even result in a total loss
Real estate Investors in real estate are exposed to liquidity foreign currency and other risks including cyclical risk rental and local market risk as well as environmental risk and changes to the legal situation
Currency risks Investments in foreign currencies involve the additional risk that the foreign currency might lose value against the investorrsquos reference currency
Equity risk Equities are subject to market forces and hence fluctuations in value which are not entirely predictable
Market risk Financial markets rise and fall based on economic conditions inflationary pressures world news and business-specific reports While trends may be detected over time it can be difficult to predict the direction of the market and individual stocks This variability puts stock investments at risk of losing value
High Yield bond risk High Yield Bonds are typically rated below investment grade or are unrated and as such are often subject to a higher risk of issuer default
Perpetual Bond risk Perpetual Bonds have no maturity date and therefore the Interest pay-out depends on the viability of the issuer in the very long term
Subordinated Bond risk In case of liquidation of the issuer investors can only get back the principal after other senior creditors are paid
Risk of Bonds with variable deferral of interest terms Investors would face uncertainty over the amount and time of the interest payments to be received
Callable bond risk Investors face reinvestment risk when the issuer exercises its right to redeem the bond before it matures
Risk of Bonds with extendable maturity date Investors would not have a definite schedule of principal repayment
Convertible or exchangeable bond risk Investors are subject to both equity and bond investment risk
Cocos risk The bond may be written-off fully or partially or converted to common stock on the occurrence of a trigger event
Explanation of indices frequently used in reports
Index Comment
Australia SampPASX 200 SampPASX 200 is an Australian market-capitalization-weighted and float-adjusted stock index calculated by Standard and Poors
BC High Yield Corp USD The US Corporate High Yield Index measures USD-denominated non-investment grade fixed-rate and taxable corporate bonds The index is calculated by Barclays
BC High Yield Pan EUR The Euro Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate EUR The US Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate USD The IG Corporate Index tracks the fixed-rate investment-grade dollar-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
Canada SampPTSX comp The SampPTSX composite index is the Canadian equivalent of the SampP 500 Index in the USA The index contains the largest stocks traded on the Toronto Stock Exchange
Consumer Confidence Indices Consumer Confidence Indices (CCIs) are based on surveys of consumers spending intentions and economic situations as well as their concerns and expectations for the immediate future
CS Hedge Fund Index The Credit Suisse Hedge Fund Index is compiled by Credit Suisse Hedge Index LLC It is an asset-weighted hedge fund index and includes only funds as opposed to separate accounts The index reflects performance net of all hedge fund component performance fees and expenses
CS LSI ex govt CHF The Liquid Swiss Index ex govt CHF is a market-capitalized bond index representing the most liquid and tradable portion of the Swiss bond market excluding Swiss government bonds The index is calculated by Credit Suisse
DAX The German Stock Index stock represents 30 of the largest and most liquid German companies that trade on the Frankfurt Exchange
DXY A measure of the value of the US dollar relative to the majority of its most important trading partners The US Dollar Index is similar to other trade-weighted indices which also use the exchange rates from the same major currencies
Eurostoxx 50 Eurostoxx 50 is a market-capitalization-weighted stock index of 50 leading blue-chip companies in the Eurozone
FTSE EPRANAREIT Global Real Estate Index Series The FTSE EPRANAREIT Global Real Estate Index Series is designed to represent general trends in eligible real estate equities worldwide
Hedge Fund Barometer The Hedge Fund Barometer is a proprietary Credit Suisse scoring tool that measures market conditions for hedge fund strategies It comprises four components liquidity volatility systemic risks and business cycle
Japan Topix TOPIX also known as the Tokyo Stock Price Index tracks all large Japanese companies listed in the stock exchanges first section The index calculation excludes temporary issues and preferred stocks
JPM EM hard curr USD The Emerging Market Bond Index Plus tracks the total return of hard-currency sovereign bonds across the most liquid emerging markets The index encompasses US-denominated Brady bonds (dollar-denominated bonds issued by Latin American countries) loans and Eurobonds
JPM EM local curr hedg USD The JPMorgan Government Bond Index tracks local currency bonds issued by emerging market governments across the most accessible markets for international investors
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 19
MSCI AC AsiaPacific The MSCI All Country Asia Pacific Index captures large and mid cap representation across 5 developed market countries and 8 emerging markets countries in the Asia Pacific region With 1000 constituents the index covers approximately 85 of the free float-adjusted market capitalization in each country
MSCI AC World The MSCI All Country World Index captures large and mid cap representation across 23 developed markets and 23 emerging market countries With roughly 2480 constituents the index covers around 85 of the global investable equity opportunity set
MSCI Emerging Markets MSCI Emerging Markets is a free-float-weighted Index designed to measure equity market performance in global emerging markets The index is developed and calculated by Morgan Stanley Capital International
MSCI EMU The MSCI EMU Index (European Economic and Monetary Union) captures large and mid cap representation across the 10 Developed Markets countries in the EMU With 237 constituents the index covers approximately 85 of the free float-adjusted market capitalization of the EMU
MSCI Europe The MSCI Europe Index captures large and mid cap representation across 15 developed markets countries in Europe With 442 constituents the index covers approximately 85 of the free float-adjusted market capitalization across the European developed markets equity universe
MSCI UK The MSCI United Kingdom Index is designed to measure the performance of the large and mid cap segments of the UK market With 111 constituents the index covers approximately 85 of the free float-adjusted market capitalization in the UK
MSCI World MSCI World is an index of global equity markets developed and calculated by Morgan Stanley Capital International Calculations are based on closing prices with dividends reinvested
OECD Composite Leading Indicators OECD Composite Leading Indicators (CLIs) are designed to provide early signals of turning points in business cycles with components that measure early stages of production respond to changes in economic activity and are sensitive to expectations of future activity
Purchasing Managers Indices Purchasing Managers Indices (PMIs) are economic indicators derived from monthly surveys of private-sector companies The two principal producers of PMIs are Markit Group which conducts PMIs for over 30 countries worldwide and the Institute for Supply Management (ISM) which conducts PMIs for the United States The indices include additional sub-indices for manufac-turing surveys such as new orders employment exports stocks of raw materials and finished goods prices of inputs and finished goods and services
Russell 1000 Growth Index The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe based on 1000 large-cap companies with higher price-to-book ratios and higher forecast growth values
Russell 1000 Index The Russell 1000 Index is a stock market index that represents the highest-ranking 1000 stocks in the Russell 3000 Index (encompassing the 3000 largest US-traded stocks with the underlying companies all incorporated in the USA) and representing about 90 of the total market capitalization of that index The Russell 1000 Index has a weighted average market capitalization of USD 81 billion and the median market capitalization is approximately USD 46 billion
Russell 1000 Value Index The Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe based on 1000 large-cap companies with lower price-to-book ratios and lower expected growth values
Switzerland SMI The Swiss Market Index is made up of 20 of the largest companies listed of the Swiss Performance Index universe It represents 85 of the free-float capitalization of the Swiss equity market As a price index the SMI is not adjusted for dividends
UK FTSE 100 FTSE 100 is a market-capitalization-weighted stock index that represents 100 of the most highly capitalized companies traded on the London Stock exchange The equities have an investibility weighting in the index calculation
US SampP 500 Standard and Poors 500 is a capitalization-weighted stock index representing all major industries in the USA which measures the performance of the domestic economy through changes in the aggregate market value
Abbreviations frequently used in reports
Abb Description Abb Description
3612 MMA 3612 month moving average IMF International Monetary Fund
AI Alternative investments LatAm Latin America
APAC Asia Pacific Libor London interbank offered rate
bbl barrel m bd Million barrels per day
BI Bank Indonesia M1 A measure of the money supply that includes all physical money such as coins and currency as well as demand deposits checking accounts and negotiable order of withdrawal accounts
BoC Bank of Canada M2 A measure of money supply that includes cash and checking deposits (M1) as well as savings deposits money market mutual funds and other time deposits
BoE Bank of England M3 A measure of money supply that includes M2 as well as large time deposits institutional money market funds short-term re-purchase agreements and other larger liquid assets
BoJ Bank of Japan MampA Mergers and acquisitions
bp Basis points MAS Monetary Authority of Singapore
BRIC Brazil Russia China India MLP Master Limited Partnership
CAGR Compound annual growth rate MoM Month-on-month
CBOE Chicago Board Options Exchange MPC Monetary Policy Committee
CFO Cash from operations OAS Option-adjusted spread
CFROI Cash flow return on investment OECD Organisation for Economic Co-operation and Development
DCF Discounted cash flow OIS Overnight indexed swap
DM Developed Market OPEC Organization of Petroleum Exporting Countries
DMs Developed Markets PB Price-to-book value
EBITDA Earnings before interest taxes depreciation and amortization PE Price-earnings ratio
ECB European Central Bank PBoC Peoples Bank of China
EEMEA Eastern Europe Middle East and Africa PEG PE ratio divided by growth in EPS
EM Emerging Market PMI Purchasing Managers Index
EMEA Europe Middle East and Africa PPP Purchasing power parity
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 20
EMs Emerging Markets QE Quantitative easing
EMU European Monetary Union QoQ Quarter-on-quarter
EPS Earnings per share rhs right-hand side (for charts)
ETF Exchange traded funds RBA Reserve Bank of Australia
EV Enterprise value RBI Reserve Bank of India
FCF Free cash flow RBNZ Reserve Bank of New Zealand
Fed US Federal Reserve REIT Real estate investment trust
FFO Funds from operations ROE Return on equity
FOMC Federal Open Market Committee ROIC Return on invested capital
FX Foreign exchange RRR Reserve requirement ratio
G10 Group of Ten SAA Strategic asset allocation
G3 Group of Three SDR Special drawing rights
GDP Gross domestic product SNB Swiss National Bank
GPIF Government Pension Investment Fund TAA Tactical asset allocation
HC Hard currency TWI Trade-Weighted Index
HY High yield VIX Volatility Index
IBD Interest-bearing debt WTI West Texas Intermediate
IC Credit Suisse Investment Committee YoY Year-on-year
IG Investment grade YTD Year-to-date
ILB Inflation-linked bond Personal Consumption An indicator of the average increase in prices for all domestic Expenditure (PCE defla- personal consumption tor)
Currency codes frequently used in reports
Code Currency Code Currency
ARS Argentine peso KRW South Korean won
AUD Australian dollar MXN Mexican peso
BRL Brazilian real MYR Malaysian ringgit
CAD Canadian dollar NOK Norwegian krone
CHF Swiss franc NZD New Zealand dollar
CLP Chilean peso PEN Peruvian nuevo sol
CNY Chinese yuan PHP Philippine peso
COP Colombian peso PLN Polish złoty
CZK Czech koruna RUB Russian ruble
EUR Euro SEK Swedish kronakronor
GBP Pound sterling SGD Singapore dollar
HKD Hong Kong dollar THB Thai baht
HUF Hungarian forint TRY Turkish lira
IDR Indonesian rupiah TWD New Taiwan dollar
ILS Israeli new shekel USD United States dollar
INR Indian rupee ZAR South African rand
JPY Japanese yen
Important information on derivatives
Pricing Option premiums and prices mentioned are indicative only Option premiums and prices can be subject to very rapid changes The prices and premiums mentioned are as of the time indicated in the text and might have changed substantially in the meantime
Risks Derivatives are complex instruments and are intended for sale only to investors who are capable of understanding and assuming all the risks involved Investors must be aware that adding option positions to an existing portfolio may change the characteristics and behavior of that portfolio substantially A portfoliorsquos sensitivity to certain market moves can be heavily impacted by the leverage effect of options
Buying calls Investors who buy call options risk the loss of the entire premium paid if the underlying security trades below the strike price at expiration
Buying puts Investors who buy put options risk loss of the entire premium paid if the underlying security finishes above the strike price at expiration
Selling calls Investors who sell calls commit themselves to sell the underlying for the strike price even if the market price of the underlying is substantially higher Investors who sell covered calls (own the underlying security and sell a call) risk limiting their upside to the strike price plus the upfront premium received and may have their security called away if the security price exceeds the strike price of the short call Additionally the investor has full downside participation that is only partially offset by the premium received upfront If investors are forced to sell the underlying they might be subject to taxing Investors shorting naked calls (ie selling calls but without holding the underlying security) risk unlimited losses of security price less strike price
Selling puts Put sellers commit to buying the underlying security at the strike price in the event the security falls below the strike price The maximum loss is the full strike price less the premium received for selling the put
Buying call spreads Investors who buy call spreads (buy a call and sell a call with a higher strike) risk the loss of the entire premium paid if the underlying trades below the lower strike price at expiration The maximum gain from buying call spreads is the difference between the strike prices less the upfront premium paid
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 21
Selling naked call spreads Selling naked call spreads (sell a call and buy a farther out-of-the-money call with no underlying security position) Investors risk a maximum loss of the difference between the long call strike and the short call strike less the upfront premium taken in if the underlying security finishes above the long call strike at expiration The maximum gain is the upfront premium taken in if the security finishes below the short call strike at expiration
Buying put spreads Investors who buy put spreads (buy a put and sell a put with a lower strike price) also have a maximum loss of the upfront premium paid The maximum gain from buying put spreads is the difference between the strike prices less the upfront premium paid
Buying strangles Buying strangles (buy put and buy call) The maximum loss is the entire premium paid for both options if the underlying trades between the put strike and the call strike at expiration
Selling strangles or straddles Investors who are long a security and short a strangle or straddle risk capping their upside in the security to the strike price of the call that is sold plus the upfront premium received Additionally if the security trades below the strike price of the short put investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short put and will also experience losses in the security position if they owns shares The maximum potential loss is the full value of the strike price (less the value of the premium received) plus losses on the long security position Investors who are short naked strangles or straddles have unlimited potential loss since if the security trades above the call strike price investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short call In addition they are obligated to buy the security at the put strike price (less upfront premium received) if the security fin-ishes below the put strike price at expiration
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 22
Important information on mutual funds Fees and charges etc Different types of fees and commissions (subscription fee amount which must be retained in trust assets repurchase fee etc) are charged when investment trustsfunds are purchased and sold In addition apart from these fees and commissions trust and management fees and other fees (audit fee trust administrative charges carried interest etc) are charged and borne by you through your trust asset Fees and commissions borne by you will be a sum of these amounts Such fees and commissions vary depending on the investment trustfund and depending on the investment status and therefore we cannot provide specific amounts or calculation methods
For detailed information on fees and commissions etc of each re-spective investment trustfund please refer to the pre-contract documents (prospectus and other supplementary documents)
Important information on dividends bull Dividends are different to interest on deposits and are paid from the net asset value of investment trustsfunds Therefore when dividends are paid the base value (net asset value per unit) will decrease by an amount equivalent to the amount paid
bull Dividends may be paid exceeding the profit earned during the calculation period (trading profit including profits of dividends etc after expenses) In this case the base value (net asset value per unit) on the settlement date in this period will decrease compared to that on the settlement date in the previous period Also the level of dividends does not always reflect the rate of return for the investment trustfund during the calculation period
bull A part or all of dividends may be virtually equivalent to some repayment of the principal depending on the purchase price of the investment trustfund by an investor The same can be applied to a case that an increase in the base value (net asset value per unit) is smaller than a dividend amount due to the investment status after purchase of the investment trustfund
Please refer to the prospectus for details
Explanation of major risks (description pursuant to Ar-ticle 37 (Regulation on Advertising etc) of the Financial Instruments and Exchange Act etc) The risks described below are a summary of some general risks of investment trustsfunds (risks which have an impact on net asset value) and do not cover all risks Please refer to the pre-trade documents (prospectus and other supplementary documents)
Price volatility risk Investment trustsfunds invest mainly in equities bonds and derivative products etc The value of the investment trustfund will go up or down due to increases or decreases in the prices of such investments Further the value of such investments will be impacted by political and economic factors the financial standing of an issuer market demand and supply interest rates and other factors
Foreign currency risk Investment trustsfunds which invest in equities or bonds etc denominated in foreign currencies entail a foreign currency risk and the base value (or net asset value) of investment trustsfunds may change depending on the currency exchange rate Even when you do not experience a loss of invest-ment principal when calculated in the base currency you may suffer a loss at conversion into Japanese yen due to fluctuations in exchange rates Fur-thermore investment trustsfunds which utilize currency trading among multiple currencies may incur costs due to such currency trading depending on the difference in short-term interest rates between the currencies and you may suffer a loss
Credit risk For investment trustsfunds which invest in equities or bonds etc the prices of these investments may increase and decrease due to changes in the business or financial standing of the issuer and other factors and you may suffer a loss
Risk pertaining to liquidity Where there is sudden high volume in a particular investment or when sudden changes in the external environment surrounding markets triggers a sudden downturn in a market or period of market turmoil etc investments may not be flexibly traded In such a case a decline in the price of the investment may impact the base value (or net asset value) of the investment trust result-ing in a loss Further the management company may decide to stop calcu-lation of net asset prices or suspend sell or redemption claims
In addition for certain types of investment trustfund there is a risk that particular investments may be designated to a separate account (or side pocket) due to a lack of liquidity When a separate account is utilized by in-vestment trustsfunds restrictions may apply as to when such investments can be liquidated through a sell or redemption claim and there may be a re-striction in the timing or form of redemption claim permissible In particular for Fund of Fund investments when an investment trustfund makes an in-vestment without time limit in another fund the investment trustfund may be influenced by investment results in the other funds
Risk associated with an outflow of money received from sales orders When there is a large volume of sale orders in a short period of time the investment trustfund may be forced to sell structured securities at a lower rate than the prevailing market price to refund monies to investors and as a result you may suffer a loss Also alternative investment trustsfunds gen-erally have a limitation in selling or cashing out the investment compared to traditional investment trustsfunds Many alternative investment trustsfunds only accept a sell or redemption order on a monthly or quarterly basis and therefore you may not be able to rapidly exit the investment in for example times of economic uncertainty
Redemption risk Investment trustsfunds may become subject to mandatory redemption due to a certain reason For details please refer to the pre-trade documents (prospectus and other supplementary documents) before subscription
Concentration risk Investment trustsfunds which invest in a certain investment product or similar investment product group may significantly decrease in value (net asset value) under severe market circumstances
Country risk When changes in political economic and social conditions in investment destination countries and regions cause a dislocation in financial and security markets security prices may significantly change Also investments in emerging markets involve unique risks including small market size and trade volume political and social uncertainties undeveloped market infrastructure such as a clearing system undeveloped information disclosure system and legal system by supervising authorities large fluctuations in exchange rates restrictions on currency remittance to foreign countries and other factors and therefore may have larger price fluctuations compared to investments in major developed markets
Important information on non-Japanese stocks Please refer to the issuer information when you purchase non-Japanese stocks
Disclaimer This material is published solely for information purposes and is intended for the recipientrsquos sole use Credit Suisse does not represent or warrant its ac-curacy or completeness The material is not directly or indirectly intended for any investment solicitation and does not constitute an invitation or offer to conclude a transaction contract for financial instruments etc Credit Suisse accepts no liability for loss arising from the use of the information in this material It is recommended that you consult with the third party professional advisors as to legal or tax issues etc This material should not be reproduced or quoted without the prior express written consent of Credit Suisse The information and opinions expressed in this material were produced by Private Banking Division at Credit Suisse as of the date of writing and are subject to change without notice Views expressed in respect of particular investment products in this material may be different from or inconsistent with the ob-
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 23
servations and views of other divisions besides Private Banking due to the differences in evaluation criteria This material is solely distributed in Japan by Credit Suisse Securities (Japan) Limited Credit Suisse Securities (Japan) Limited will not distribute or forward it outside Japan
You may incur a loss as a result of fluctuations in stock prices if you invest in stocks In relation to foreign stocks you may incur a loss in such stocks due to foreign exchange rate fluctuations etc The market value of bonds is affected by interest rate fluctuations or changes in the financial standing of any issuer etc as such you may incur a loss if you sell such bonds before they are redeemed In relation to foreign bonds you may incur a loss in such bonds due to foreign exchange rate fluctuations etc The net asset value of mutual funds can fall as well as rise due to price changes of underlying stocks bonds etc and foreign exchange rate fluctuations and this may cause you to incur a loss
Structured securities and derivatives are complex instruments 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 of any structured security or transaction may be affected by changes in financial market conditions reference indices volatility and the credit quality of any issuer or reference issuer
Furthermore there are structured securities on which you may incur a loss since the redemption amounts are linked with fluctuations in reference indices etc There are also derivatives on which potential losses may exceed the amount of the initial investment Commission rates for any transactions will be as per the rates agreed between Credit Suisse and you For transactions conducted on a principal to principal basis between Credit Suisse and you the purchase or sale price will be the total consideration Transactions con-
ducted on a principal to principal basis including over the counter derivatives transactions will be quoted as a purchasebid price or selloffer price and for which a difference or spread may exist Charges in relation to transactions will be agreed prior to dealing as per our requirements under the Financial Instruments and Exchange Law
By purchasing financial instruments etc you may incur a loss or a loss in excess of the principal as a result of fluctuations in market prices or other financial indices etc Please read carefully the Pre-Contract Documentation provided for an explanation of associated risks and commissions etc of individual financial instruments etc prior to purchase Please contact your Relationship Manager if you have any questions
UNITED STATES NEITHER THIS REPORT NOR ANY COPY THEREOF MAY BE SENT TAKEN INTO OR DISTRIBUTED IN THE UNITED STATES OR TO ANY US PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE US SECURITIES ACT OF 1933 AS AMENDED)
Credit Suisse Securities (Japan) Limited Financial Instruments Dealer Di-rector-General of Kanto Local Finance Bureau (Kinsho) No 66 a member of Japan Securities Dealers Association Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association
Copyright copy 2021 Credit Suisse Group AG andor its affiliates All rights reserved
21C013A_IS_J
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 24
Imprint
Publisher Credit Suisse Private Banking amp Wealth Management Investment Solutions amp Products
Information about other Investment Solutions amp Products publications Internet httpsinvestmentcredit-suissecom
Intranet (for employees only) httpsisrcsintranet
Subscription (clients) Please contact your customer advisor to subscribe to this publication
Subscription (internal) For information on subscriptions please visit httpisrcsintranetsubscriptions
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 25
Reaffirming the appeal of Supertrends Examining tail risk Uncontrollable inflation and rising After the pandemic our society is changing at an accelerating pace Our long-term investment themes called Supertrends can be a suitable option for the prudent investor in such times
interest rates In response to the pandemic global debt has ballooned to unprecedented levels Thanks to historically low interest rates the burden of this debt is sustainable However investors should be aware of related risks Uncontrolled inflation and a sharp rise in interest rates may continue to be a tail risk for the market (17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 5
Japan asset allocation
Review of our portfolio allocations The annual review of our Strategic Asset Allocation leads us to reduce our allocation to bonds in portfolios and increase allocations to equities and alternative investments
Soichiro Matsumoto Investment map (regions vs asset classes) Chief Investment Officer Japan
Annual review of our Strategic Asset Allocation Every year Credit Suisse updates its macro market forecasts (risk and return potential) for the next five years and publishes these forecasts in the form of our Capital Market Assumptions (CMA) Based on the new CMA we have review and update our our medium-term asset allocation benchmarks also known as our Strategic Asset Allocation (SAA)
For our 2021 SAA the allocation to bonds has decreased due to lower expected returns while our allocations to equities and alternative investments have increased Source Credit Suisse
(16022021)
JPY international tactical asset allocation (TAA balanced) Balanced TAA Vs benchmark Benchmark SAA 2021
January February Change January February
Liquidity 20 40 20 -30 -10 50
JPY 20 40 20 -30 -10 50
Fixed income 465 315 -150 -10 -10 325
JPY 25 35 10 -15 -05 40
Global corporates 330 180 -150 -15 -15 195
Global high yield 30 30 00 00 00 30
Emerging markets bond USD 40 30 -10 10 00 30
Emerging markets USD corporate 00 40 40 NA 10 30
Equity Emerging markets bond LC 40
445 00 520
-40 75
10 20
NA 20
00 500
Japan 155 180 25 -10 -10 190
World (ex Japan) 290 340 50 30 30 310
Switzerland 05 05 00 00 00 05
Eurozone 25 25 00 00 00 25
North America 125 150 25 00 00 150
United Kingdom 20 20 00 10 10 10
Australia 05 05 00 00 00 05
Emerging markets 50 60 10 20 20 40
LatAm 00 00 00 00 -05 05
APAC 45 50 05 20 20 30
EMEA 05 05 00 00 00 05
Supertrends 60 75 15 00 00 75 Alternative investments 70 125 55 20 00 125
Real estate Japan 25 25 00 00 00 25
Hedge fund 00 25 25 NA 00 25
Private equity 00 75 75 NA 00 75
Commodities 45 00 -45 20 NA 00 Total 1000 1000 00 00 00 1000
Source Credit Suisse
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 6
Supertrends
Supertrends Investmentsolutions In this installment we focus on the ldquoClimate changerdquo Supetrend and suggest investment solutions from sectors that can contribute significantly to reducing greenhouse gas emissions as well as mitigating long-term impacts of global warming
Maki Shimizu Investment Strategist - Japan Strategy
Policy tailwinds The ldquoClimate changerdquo theme is strongly influenced by policy factors hence we expect the recent change of government in the USA to lead to renewed interest in environmental policy issues On his first day in office last month US President Joe Biden announced his countryrsquos return to the Paris Agreement ndash an international framework for combating global warming ndash and began to shift policy course from the previous adminis-tration On environmental issues it may be difficult to reverse the international communityrsquos distrust and skepticism of the USA brought about by the ldquoAmerica Firstrdquo approach of the past four years However shifting to renewable energy sources is one of the major policy targets of President Biden and international cooperation on this issue will likely be gen-uinely welcomed
Currently countries that have ratified the Paris Agreement are struggling to meet their targets for reducing emissions by 2050 As policy support increases business opportunities related to environmental policy are likely to expand at the private sector level Here we focus on sectors that fall under this Supertrend because of their ability to contribute signifi-cantly to reducing greenhouse gas emissions and mitigating long-term impacts of global warming
Investment solution features A common catchphrase for all four sub-themes associated with this Supertrend is ldquosustainable energy supplyrdquo With the Paris Agreementrsquos goal of ldquocarbon neutralityrdquo in mind we look for investment opportunities arising out of a structural transformation in the energy sector via carbon-free electricity sustainable transportation pioneering oil and gas energy conversion and agriculture and food sub-themes We high-light climate change-related companies that primarily develop renewable energy and provide energy storage technologies
Besides companies that are likely to see continued growth via the long-term shift in energy policy we highlight others that are likely to reform the agriculture sector by incorporating automation in their production processes Additionally we highlight related entries from our environmental social and
governance (ESG) related stock list (ESG Top 25) that were discussed in the recent Supetrends report In mutual funds in addition to the Global Security Fund we offer solutions that enable investment in areas related to rising climate change awareness from an ESG perspective
(17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 7
Supertrends
Theme Detail Recommended solution
Anxious societies ndash Inclusive capitalism
AM One Global Security Stock Fund CS Beneficiaries of Anxious Societies Selection
Affordability Basis goods such as housing healthcare and pension have become unaffordable for many people
Employment Skilling reskilling and upskilling are crucial steps as technical progress radically changes required skill set
Personal security Everyday challenges such as the pandemic outbreak or cybersecurity are the most important pain points for people
Infrastructure ndash Closing the Global Core Infrastructure Stock gap Fund CS Infrastructure List
Transport Developed markets have to invest in project replacements while emerging markets continue to spend on growth
Energy amp water Energy transition toward renewables to limit global carbon emission Middle East faces an acute water shortage
Smart cities As 68 of the worldrsquos population will live in urban areas by 2050 cities must become smarter to handle this strong growth
Telecom infrastructure As 5G will be the next major investment cycle for the mobile industry mobile traffic may grow almost five-fold
Technology at the service of AM One Global Security Stock humans Fund CS Technology Selection
Digitalization The number of connected devices is surging and thus edge computing is expected to gain traction in order to capture even more value from data
Virtual reality Growing to the size of todayrsquos smartphone market in the years ahead
Artificial intelligence (AI) Material growth potential for home industries and cities digitalization and healthtech and fintech markets
Industry 40 Robots and automation are entering various non-industry sectors demand for industry robots is rising
Healthtech Digitalization solution biotechnology and AI in product development and healthcare research Silver economy ndash Investing for Select Sector SPDR ETFs (Health-population aging care Consumer Staples Consumer
Discretionary) CS Silver Economy Stocks
Therapeutics amp devices Biopharma and medical device companies to innovate around senior conditions such as heart disease amp cancer
Care amp facilities Managed care organizations hospitals and dedicated facilities to face increasing demand
Health amp life insurance Private pension gap in emerging markets and growing importance of private pension fund amp insurance solutions
Senior consumer choices High spending power of seniors to benefit consumer companies with senior-centric offerings Millennials values AM One Global Security Fund CS
Millennials Favorites
Sustainable business and invest- ESG overlay across the entire millennials stock universe to underpin the importance of sustainability ments
Digital natives Being connected 247 having a strong preference for technology brands driving an education technology revolution
Fun health amp leisure A new way of living and spending with substantial growth potential in emerging markets Climate change AM One Global Security Fund CS
Climate Change Choice ESG Top 25 promotion list
Carbon-free electricity CO2-neutral electricity production and the replacement of coal-fired electricity as a key component of CO2 reduction
Oil amp gas transition pioneers Demand for fossil fuel remains high for now while the transition pioneers will be leading the sector
Sustainable transport Sustainable fuels a switch to electric vehicles more efficient engines and railroads will reduce greenhouse gas (GHG) emissions
Agriculture amp food A growing population and a high CO2 emission from the agriculture sector require efficiency gains
Source Credit Suisse
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 8
Economics
Positive growth outlook beyondwinter soft patch After a likely soft patch in the winter months we expect very strong growth this year
The main risk to our near-term forecast is new virus strains that may necessitate further shutdowns
James P Sweeney Chief Economist and Regional CIO Americas
Peter James Foley Economist
Global growth rebounded strongly in the second half of 2020 We expect a winter soft patch most noticeable in Europe as viral contagion leads to mobility restrictions that hamper service sector activity Beyond that the growth outlook is very positive
Global demand has recently been propped up by developed market households Real retail sales in developed economies have exceeded pre-pandemic levels since September and are now above the long-term trend Business investment has risen too but not as much as consumption The onus is on business investment to drive the recovery further
A dominant feature of the pandemic economy has been the contrast between goods demand which has recovered sharply and services demand which has suffered due to social distancing The divergence is likely to unwind this year as spending that was redirected to goods in 2020 returns to services in 2021 Services consumption in developed market economies is about twice as large as goods consumption and is likely to increase strongly this year as vaccine rollouts support an expansion of activity
In that sense consumer spending on services might substitute some goods spending But at the same time a resurgent service sector may give further tailwinds to the goods sector through business spending
Uncertainties about variants vaccines and stimulus COVID-19 infections are falling in Europe and the USA But new highly contagious strains risk new or extended shut-downs which are the main downside risk to our near-term forecast
Vaccine rollout has not been smooth but the USA and UK will likely vaccinate a sufficient share of their populations by this summer that a strong services recovery is likely Europe and other major economies lag behind which may mean longer restrictions on activity Normalization appears to be out of reach before Q3 in large economies but vaccinations will support increased mobility
The USA is likely to pass another pandemic stimulus bill soon It will likely cost at least half the USD 19 tn price tag of the original plan but even this reduced size will substantially affect the US growth outlook Direct checks to households will im-mediately boost consumer spending and increase household savings further
There is less uncertainty over Eurozone policy support but it may not be forceful enough Europersquos fiscal policy so far has focused on mitigation rather than stimulation But this means that as the economy recovers fiscal support will fade meaning limited upside to growth The European Central Bank has stated it can ease policy further but it is unclear whether this will boost lending in the real economy
Last yearrsquos contraction in the Eurozone was larger than in the USA But the rebound is likely to be weaker We expect Eu-rozone GDP to grow 50 in 2021 while US GDP should grow 57 (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 9
Global investment strategy
Retain preference for EM equities Continued fiscal and monetary policy support and an easing of the pandemic should help Western economies see strong growth in the second half of the year
We retain a cyclical tilt in portfolio allocations through overweight positions in equities with a preference for EM equities and commodities
Philipp Lisibach Chief Global Strategist
The Credit Suisse Investment Committee (IC) has reduced emerging market hard currency (EM HC) sovereign bonds to strategic allocations and changed the return outlook for devel-oped market investment grade (IG) bonds from attractive to neutral Equity allocations are kept at overweight with a continued preference for emerging markets The BCOM also remains at overweight
Reflation expected to support cyclical assets Even though the pandemic continues to weigh on economic activity falling infection rates and hospitalizations alongside vaccine rollouts should allow economies to reopen In combi-nation with continued fiscal and monetary policy support Western economies are likely to see exceptionally strong growth in the second half of 2021 The USA is currently benefiting from a second relief package which is likely to be followed by a third one soon adding fuel to the expected concerted recovery
As such the IC keeps a cyclical bias in portfolio allocations expressed by overweights in equities and the broad commod-ity index (BCOM) In equities we continue to express a pref-erence for emerging markets specifically Chinese equities which show strong price momentum having outperformed global equities since the start of the year Although China has initiated policy-tightening measures we think it will take these steps in a controlled manner without risking denting market sentiment
Risk of inflation scare mitigated by central bank com-mitments Besides the risk that new virus strains with potential resistance to vaccines may fuel market concerns markets could start consolidating in coming months should a rise in US inflation
due to base effects lead to an inflation scare Although we think that such an inflation increase will be temporary uncer-tainty about the outlook for the second half is elevated due to the expected strong growth and likely supply-side bottle-necks as economies reopen To mitigate this risk the contin-ued commitment by central banks above all the US Federal Reserve (Fed) to keep financial conditions easy will be key Recent comments by Fed Chair Powell stressing patience and suggesting that the economy is far from overheating give us confidence that this key market support will stay in place For real assets such as equities and commodities this should continue to prove beneficial
Tight credit spreads Although the anchoring of treasury yields for shorter maturities via central banksrsquo rate guidance should prevent a sudden surge in longer-dated yields we expect them to grind higher as growth momentum builds Thus performance is expected to continue to suffer and the IC is keeping government bonds at underweight Due to tight IG credit spreads the IC has reduced the return outlook for IG from attractive to neutral For EM HC sovereign bonds we take profit on our successful overweight and cut portfolio allocations back to strategic levels as spreads have eroded Investors should find more value in EM HC corporate as well as selected EM local sovereign bonds Despite some USD consolidation at the start of this year the USD is likely to continue its weakening trend against other major currencies in coming months
Watch a video featuring the highlights of the Credit Suisse investment strategy wwwcredit-suissecomciofilm
(15022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 10
Special topic
ESG Integrated Investing according to environmental social and governance (ESG) criteria is in the process of becoming mainstream
Combining the House View with ESG convictions ldquoESG Integratedrdquo is a set of best ideas for investors to gradually transition to multi-asset portfolios that perform solidly both on traditional financial performance metrics and on ESG metrics ldquoESG Integratedrdquo is part of our Signature Convictions
Nannette Hechler-Faydherbe Chief Investment Officer ndash International Wealth Management
Jessie Gisiger Head of Credit Strategy and Investment Themes
Green transitions are at the heart of the fiscal spending and recovery plans put in place in response to the COVID-19 pandemic Against this backdrop strong regulatory momen-tum and fiscal ambitions in the USA Europe and China have only added to a global trend toward integrating ESG criteria at every level of economic activity
There is growing evidence that adhering to ESG criteria not only helps to mitigate our impact on climate change but also supports financial risk-reward for several reasons First be-sides increasing transparency and awareness ESG filters help keep in check the risk of heightened regulatory scrutiny that non-ESG-compliant business practices increasingly face Second ESG factors can impact financial business conditions such as the incurred cost of capital Focusing on good gover-nance and keeping an eye on regulatory risk are equally likely to be beneficial when considering default risk in the corporate bond market Third there are strong investment themes emerging from the policy support currently developing espe-cially in climate change to achieve net-zero carbon emissions by 2050
Signature Convictions ESG Integrated Combining key elements of the Credit Suisse House View with thematic priorities in ESG investing that emerge from these catalysts we have developed a set of best ideas (see table) that can help investors gradually transition their invest-ments toward multi-asset portfolios that perform solidly on both traditional financial performance metrics as well as ESG metrics
In fixed income ESG emerging market corporate bonds and ESG subordinated bonds offer investors an avenue to earn a yield pick-up but at a lower risk of credit spread widening than the broader index Empirical assessments have also shown that companies with higher ESG scores tend to have a lower probability of default Investors looking for an equiva-lent to money-market instruments may consider impact invest-ments which deliver low single-digit returns with limited vola-tility
In equities we highlight the Supertrends climate change and sustainable infrastructure as two key ESG-related themes that are focused on decarbonizing economic activity and are catalyzed by global regulatory momentum For investors looking for single-stock investments our Credit Suisse ESG Top 25 list includes stocks from our high conviction list that are in category 3 (ldquoESG awarerdquo) or category 4 (ldquoThematicrdquo) of our Credit Suisse ESG classification framework
Investors who would like to invest according to our preference for EM equities also have the option of doing so in an ESG-compliant manner through the MSCI Emerging Markets ESG Leaders Index That index has on average outperformed the MSCI Emerging Markets Index since 2008 This outperfor-mance can be explained by the MSCI Emerging Markets ESG Leaders Indexrsquos higher exposure to growth sectors and strong orientation to new economy sectors that benefit from powerful structural growth drivers Separately green real estate is likely to lead to higher occupancy rates and a lower probabil-ity of income loss resulting in a more stable income stream
For investors looking to alternative investments for further diversification impact private equity sustainable alpha hedge fund and carbon emission allowance futures are also interest-ing
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 11
Signature Convictions ESG Integrated
Source Credit Suisse
(16022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 12
Special topic
Bullish hopes in Chinarsquos Year ofthe Ox Our positive view on equities remains in place We express it through a preference for emerging market particularly Chinese equities
After strong gains so far this year we challenge the quality and longevity of Chinarsquos bull market and explain why we remain optimistic
John William Huia Woods CIO APAC
Just ahead of Chinese New Year Chinarsquos benchmark Shanghai Composite Index surged to new highs for the year Chinarsquos strong market gains are fueled by a rush of excess liquidity the likes of which we have not seen since 2015 But experienced investors will know that a rising tide can just as easily ndash and quickly ndash turn into an ebbing tide particularly when fundamentals become unsupportive
Red flags In fact red flags are not hard to find Possibly the most im-portant observation is that Chinarsquos growth momentum has passed its peak and will likely decelerate into 2021 A decel-erating economy does not necessarily hurt a bull market but it does not necessarily help it either
Equally important is the view that Chinarsquos ndash increasingly less dovish ndash authorities are unlikely to further stimulate the economy It has been widely observed that they remain vigilant and concerned toward the possible formation of price bubbles in real and financial assets including equity markets
Indeed the Peoplersquos Bank of Chinarsquos willingness in late January 2021 to withdraw rather than add CNY 570 bn of liquidity from interbank markets ahead of the Chinese New Year suggests that a clear inflection point has been reached with monetary policy now normalizing after two years of stimulus and easy money
Amid decelerating economic growth corporate revenues are under pressure meaning analyst earnings revisions are flat-lining and thus failing to keep pace with more vibrant emerging andor developing markets In absolute terms weaker earn-ings exert upward pressure on valuations Yet a liquidity-driven rally can still push valuations higher
Imbalance The liquidity-centric imbalance at the heart of Chinarsquos bull market leaves it exposed and vulnerable to correction in our opinion An environment of tightening monetary policy decel-erating growth and stretched valuations are generally not conducive to sustained price appreciation In fact in Chinarsquos case incrementally greater inflows of liquidity will be required to sustain existing price levels At least from an onshore per-spective the music will stop
Intriguingly attention is now turning to foreign investor inflows which hitherto have been muted But there are reasons why a rebound in sentiment might be expected including improving geopolitical sentiment with the new administration in the USA and expectation of CNY appreciation which should boost returns for USD investors Overall a reacceleration in flows could be a key factor in keeping Chinese markets supported
Sound diversification is key On balance at least for the next few months we remain overweight Chinese equities in a portfolio context Our funda-mental concerns are medium-term in nature while near-term risks ndash supported by liquidity ndash are tilted toward further price gains In line with our House View we emphasize the value of well-diversified exposure to EM equities overall
(15022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 13
Fixed income
EM HC corporate bonds preferred The ongoing reflationary path is going to support long-dated yields warranting a con-tinued cautious stance on government bonds
We reduce our allocation to EM HC sovereign bonds to benchmark weight We no longer see IG credit as attractive and prefer EM HC corporate bonds
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
Global benchmark yields have continued to trend higher in the last few weeks supported by reflationary expectations Despite the marketsrsquo repricing of more US fiscal stimulus the Federal Reserve (Fed) kept control of front-end rates expectations with the US yield curve further steepening as a result Going forward long-dated inflation expectations are still expected to be the main driver of nominal benchmark yields Both should moderately rise in tandem particularly in the USA With other developed regions following the same reflationary theme albeit with a lag we anticipate that global government bonds will remain an unattractive investment We therefore keep exposure below benchmark allocations in portfolios Furthermore we keep a relatively short duration stance in US Eurozone and Swiss bond markets and prefer US inflation-linked bonds over comparable nominal govern-ment bonds
IG credit no longer attractive prefer EM HC corporate bonds We no longer think that global investment grade (IG) credit offers attractive return potential While monetary policy re-mains supportive IG spreads are already at historical lows and no longer offer enough compensation against the further rise in benchmark yields we expect Global high yield (HY) credit market returns should remain attractive thanks to policy support and the economic recovery we project However we
see limited further spread compression potential in US HY and European HY from the current historical lows We believe emerging market hard currency (EM HC) corporate bonds are most attractive within credit with pro-cyclical emerging markets benefiting from the global growth rebound expected this year At the same time and due to their comparatively low benchmark duration EM HC corporate bonds are less sensitive to higher US government yields than global IG EM HC corporates on average provide similar credit fundamentals to developed market credit but offer more attractive spreads amid the current reflationary environment Also we see more opportunities in EM HC HY corporates particularly in Asia where spreads offer a premium of around 200 bp over US HY
EM HC sovereigns reduced to benchmark allocation EM HC sovereign bond valuations are currently tight with spreads not far off the lows reached after the great financial crisis Inflation has largely bottomed out due to base effects food and energy prices and there is limited scope for further monetary stimulus EM HC sovereign bond spreads have a high correlation with US Treasury yields With the latter still on the rise risks to EM HC sovereign bonds are increasing Positioning is at record highs and flows continue to acceler-ate This suggests that a further strong performance is less likely Given these considerations we have decided to reduce EM HC sovereign bonds to benchmark allocation in our portfolios (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 14
Equities
Remain constructive on globalequities We maintain our attractive return outlook for global equities with a preference for emerging markets UK Germany financials materials and health care
After a double-digit earnings decline in 2020 global earnings are set to recover sharply this year
Marc Haumlfliger Global Equity Strategist
We maintain our attractive return outlook for global equities on the back of supportive monetary conditions vaccine roll-outs growing stimulus prospects and our constructive outlook for economic and earnings growth While traditional valuation metrics remain elevated they look less stretched relative to other asset classes such as global treasury bonds The earnings recovery is key to our thesis of attractive returns for global equities as we do not expect further re-ratings (ie higher multiples) to drive equity markets going forward So far the Q4 earnings results underpin our view that companies have learned how to deal with the current circumstances given earnings results are mostly surpassing projections As a result of this strong showing global EPS growth rates (YoY) will likely be positive again for the Q4 2020 earnings season After an overall double-digit earnings decline in 2020 global earnings are set to recover sharply this year ndash particularly in cyclical market segments Risks to our constructive view on equities come from COVID-19 concerns (mutation potential vaccine disappointments) disappointing fiscal stimulus or earlier-than-expected comments about a withdrawal of mon-etary stimulus
In a portfolio context we keep our overweight in emerging market (EM) equities as we remain bearish on the USD ex-pect higher commodity prices and see the re-opening environ-ment as positive for EM equities We expect cyclical segments that lagged the broader equity benchmark in 2020 ndash such as the UK Germany and financials ndash to catch up amid the im-proved economic outlook and rising inflation expectations
Latest view changes In developed market equities we turn neutral from outperform on Hong Kong equities as a result of their strong performance in recent weeks and increasing macro headwinds In EM eq-uities we now expect South African equities to outperform driven by attractive valuation a strong earnings picture and an accommodative central bank We no longer expect Indian equities to underperform and turn neutral following the gov-ernmentrsquos pro-growth budget announcement an improved macroeconomic outlook and earnings estimates being revised higher at a faster pace than peers
Earnings expected to recover in 2021
Last data point 09022020 Historical performance indications and financial market
scenarios are not reliable indicators of current or future performance Source Factset
Estimates Credit Suisse
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 15
Alternative investments
Still positive on commodities Commodity performance has been strong year-to-date A near-term pause is possible but we retain a positive view and prefer diversified exposure with a cyclical bias
Despite recent resilience we expect listed real estate to lag equities In hedge funds we highlight opportunistic long-short discretionary and EM macro managers as well as private credit
Jelena Kucenko Head of Alternative Investments
Stefan Graber Head of Commodity Strategy
Hedge funds Be selective Hedge funds were flat in January as short covering activity at month-end erased initial gains Fundamental long-short and macro funds suffered the most while relative value and event driven were more resilient Our Trading Conditions Barometer is in favorable territory Combined with regional and sector divergences arising from vaccine rollouts compli-ance with environmental social and governance criteria and record levels of capital-market activity this creates opportuni-ties for long-short managers We also highlight private credit strategies with a focus on consumer loans and mid-market companies which should benefit from resilient household fi-nances and a post-pandemic recovery Discretionary and emerging market (EM) macro managers are preferred in case of market setbacks
Commodities Providing cyclicality and inflation hedge Commodities started 2021 on a strong note focusing on positive growth expectations instead of near-term COVID-19 concerns A near-term pause is possible as the latest gains came ahead of an anticipated reacceleration in industrial ac-tivity That said improved bottom-up fundamentals have flipped aggregate curves into backwardation translating into positive roll yields which may attract additional investor inter-est Commodities also provide a hedge should inflation sur-prise to the upside We retain our positive view on the asset class and favor diversified exposure with a cyclical tilt (oil energy) For oil the March OPEC+ meeting is the next event
risk and a potential source of volatility as the group will likely discuss supply hikes We still think that gold offers diversifica-tion and some upside but the bull run could be maturing as yield curves have started to steepen We thus tone down our optimism on the metal
Real estate Expected to underperform equities Listed real estate slightly outperformed global equities in January thanks to strong earnings results in logistics and a rebound in oversold retail companies as short sellers covered their positions But we believe that further upside potential for the sector is limited as the impact of lockdowns is not yet reflected in landlordsrsquo share prices in our view Additionally valuations in structurally resilient sectors such as logistics and data centers already reflect fundamentals This and the prospect of higher long-term yields and an increased risk of US regulatory headwinds reinforce our negative sector view
Private equity Backdrop still positive Robust investment activity at the end of last year pushed pri-vate equity deal values higher but the asset class still offers better priced opportunities than public markets Dry powder ndash committed but uninvested capital ndash is at a record of over USD 2 trn with subdued fundraising activity expected to re-bound as investors increase commitments in 2021 according to data provider Preqin The expected economic rebound is supportive for the asset class but rising long-term interest rates pose risk to financing costs We highlight strategies offering high growth with limited leverage (venture capital growth capital) and secondary funds which can exploit market opportunities tactically generating excess returns over time
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 16
Foreign exchange
Keep favoring cyclical currencies We maintain a short USD bias and prefer commodity and cyclical currencies such as the EUR GBP or SEK
Within our positive emerging market stance we particularly like the CNY KRW BRL and RUB
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
The USD was broadly flat against other major currencies over the last month Investorsrsquo focus on US fiscal stimulus and an expected rise in US inflation allowed for some normalization in previously large USD short positions While the repricing of near-term growth expectations also in light of a more rapid US vaccination campaign created temporary USD resilience we think this improvement is likely partly reflected in the USD already We maintain that as the Federal Reserve (Fed) keeps short-term rates close to zero for longer there is little room for sustained gains in the USD Moreover US fiscal stimulus will not only deteriorate fiscal balances but also deepen the current account deficit This will also benefit the global econ-omy through improved global trade and sentiment which should weigh on the USD Uncertainties relating to new COVID-19 variants and extended USD short positioning re-main a risk in the short term
Constructive on cyclical currencies A slow start to vaccine rollouts and renewed political risks in Italy somewhat dented sentiment toward the EUR in early February Even so the single currency remained stable vs the USD The Eurozone is facing a delayed recovery but this is consensus already and likely temporary in nature With political risks now subsiding the EU recovery fund operational in the next quarter and the global growth recovery benefitting the export-oriented Eurozone we think EURUSD can gain some further ground and target 124 in 3M Elsewhere in Europe we also remain positive on the SEK and the GBP
vs the USD With global reflation set to continue and com-modity prices likely to remain supported through the ongoing rebalancing we still favor commodity currencies in particular the NZD CAD and NOK
BRL RUB CNY and KRW preferred Emerging market (EM) currencies were broadly range-bound on an index level over the last month but with significant re-turn dispersion across currencies The main arguments sup-porting our attractive view on EM FX remain in place We continue to see further scope for a broad appreciation of EM FX versus the USD Even though the EM economic recovery has peaked economic activity still looks solid relative to de-veloped markets External positions remain in good shape and non-resident flows are still supportive In addition with inflation bottoming and food prices increasing scope for dovish EM central bank surprises seems to be exhausted This should be favorable for EM carry versus the USD
The RUB BRL CNY and KRW remain our preferred curren-cies in EM Both the RUB and BRL are cheaply valued Addi-tionally the RUB should profit from attractive risk-adjusted carry and the BRL from more hawkish central bank expecta-tions In Asia we remain positive on the CNY and KRW and neutral on the other Asian FX We lower our 3M USDCNY target to 635 but keep our 12M target at 625 Our USDKRW targets remain unchanged at 1060 and 1010 in 3M and 12M respectively We retain a mild downward bias on the other USDAsia pairs expecting broad USD weak-ness (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 17
Forecasts
At a glance More information on the forecasts and estimates is available Credit Selected indices on request Past performance is not an indicator of future
Yield Spread Duration 3M TR 12M TR fore-performance Performance can be affected by commissions () (bp) (years) forecast cast fees or other charges as well as exchange rate fluctuations BC Global Aggregate 091 33 731 -010 010
BC Global Treasuries 058 9 862 -030 -050
BC Global IG Corp 141 94 735 033 130 Central bank rate10-year government bonds BC Global HY Corp 429 378 416 062 247
CB rate 10Y JPM EMBI Global Di- 480 344 764 032 126 yield versified HC
in Spot 3M 12M Spot 3M 12M
CHF -075 -075 -075 -026 -030 -030 BC = Barclays Capital IG= Investment Grade JPM = JP Morgan (EMBI+) Index data as of 1522021 Forecast as on 1522021
EUR -050 -050 -050 -035 -030 -030 These forecasts are no reliable indicators of future performance Source Bloomberg
USD 013 000-025 000-025 130 140 150 Credit Suisse GBP 010 010 010 062 050 060
AUD 010 010 010 139 130 140
JPY -010 -010 -010 010 010 010 Foreign exchange
Spot 3M 12M Spot rates are closing prices as of 1622021 Forecast date 1122021 These
EURUSD 121 124 125 forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC USDCHF 089 087 088
EURCHF 108 108 110
USDJPY 10594 10200 10000
Equities EURGBP 087 087 086
GBPUSD 139 143 145 Index Spot PE Div y 3M 12M () AUDUSD 078 078 079
MSCI AC World 1679 202 22 1690 1790 USDCAD 126 123 120
US SampP 500 3933 234 21 3950 4150 EURSEK 1004 1010 1020
Eurostoxx 50 3726 181 26 3700 3850 EURNOK 1016 1020 1020
UK FTSE 100 6749 143 43 6700 7000 EURPLN 449 457 459
Japan Topix 1965 185 21 1940 1970 USDCNY 646 635 625
Australia SampPASX 6917 207 38 6900 7150 USDSGD 132 131 128
200 USDKRW 109898 106000 101000
Switzerland SMI 10908 186 28 10950 11400 USDINR 7264 7270 7200
MSCI Emerging Mar- 190621 166 22 194000 207000 USDBRL 538 525 530 kets USDMXN 1994 2050 2150
Prices as of 1622021 Forecast as on 1122021 Gross return (incl dividends) Spot rates are as of 1722021 These forecasts are no reliable indicators of future performance Source Bloomberg These forecasts are no reliable indicators of future performance Source Bloomberg Datastream Credit SuisseIDC Credit SuisseIDC
Commodities Real GDP growth and inflation Spot 3M 12M GDP Inflation
Gold (USDoz) 1793 1900 2000 growth
Silver (USDoz) 273 27 30 in 2020 2021 2022 2020 2021 2022
Platinum (USDoz) 12624 1300 1250 CH -32 35 20 -07 03 02
Palladium (USDoz) 2390 2400 2500 EMU -72 50 42 03 06 10
Copper (USDton) 8416 8300 7900 USA -35 57 35 12 20 21
WTI Crude Oil (USDbbl) 600 60 60 UK -100 53 75 09 14 18
Bloomberg Commodity index 1815 181 186 Australia -20 35 32 08 15 15
Japan -49 17 19 -02 01 03
Spot rates are as of 1722021 forecast as on 1122021 China 23 71 52 25 11 17 These forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC Last forecast update 10022021
These forecasts are no reliable indicators of future performance Source Bloomberg Credit Suisse
(17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 18
Glossary
Risk warnings
Emerging markets Emerging markets are located in countries that possess one or more of the following characteristics a certain degree of political instability relatively unpredictable financial markets and economic growth patterns a financial market that is still at the development stage or a weak economy Emerging market investments usually result in higher risks as a result of political economic credit exchange rate market liquidity legal settlement market shareholder and creditor risks
Hedge funds Regardless of structure hedge funds are not limited to any particular investment discipline or trading strategy and seek to profit in all kinds of markets by using leverage derivative instruments and speculative investment strategies that may increase the risk of investment loss
Commodity investments Commodity transactions carry a high degree of risk and may not be suitable for many private investors The extent of loss due to market movements can be substantial or even result in a total loss
Real estate Investors in real estate are exposed to liquidity foreign currency and other risks including cyclical risk rental and local market risk as well as environmental risk and changes to the legal situation
Currency risks Investments in foreign currencies involve the additional risk that the foreign currency might lose value against the investorrsquos reference currency
Equity risk Equities are subject to market forces and hence fluctuations in value which are not entirely predictable
Market risk Financial markets rise and fall based on economic conditions inflationary pressures world news and business-specific reports While trends may be detected over time it can be difficult to predict the direction of the market and individual stocks This variability puts stock investments at risk of losing value
High Yield bond risk High Yield Bonds are typically rated below investment grade or are unrated and as such are often subject to a higher risk of issuer default
Perpetual Bond risk Perpetual Bonds have no maturity date and therefore the Interest pay-out depends on the viability of the issuer in the very long term
Subordinated Bond risk In case of liquidation of the issuer investors can only get back the principal after other senior creditors are paid
Risk of Bonds with variable deferral of interest terms Investors would face uncertainty over the amount and time of the interest payments to be received
Callable bond risk Investors face reinvestment risk when the issuer exercises its right to redeem the bond before it matures
Risk of Bonds with extendable maturity date Investors would not have a definite schedule of principal repayment
Convertible or exchangeable bond risk Investors are subject to both equity and bond investment risk
Cocos risk The bond may be written-off fully or partially or converted to common stock on the occurrence of a trigger event
Explanation of indices frequently used in reports
Index Comment
Australia SampPASX 200 SampPASX 200 is an Australian market-capitalization-weighted and float-adjusted stock index calculated by Standard and Poors
BC High Yield Corp USD The US Corporate High Yield Index measures USD-denominated non-investment grade fixed-rate and taxable corporate bonds The index is calculated by Barclays
BC High Yield Pan EUR The Euro Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate EUR The US Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate USD The IG Corporate Index tracks the fixed-rate investment-grade dollar-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
Canada SampPTSX comp The SampPTSX composite index is the Canadian equivalent of the SampP 500 Index in the USA The index contains the largest stocks traded on the Toronto Stock Exchange
Consumer Confidence Indices Consumer Confidence Indices (CCIs) are based on surveys of consumers spending intentions and economic situations as well as their concerns and expectations for the immediate future
CS Hedge Fund Index The Credit Suisse Hedge Fund Index is compiled by Credit Suisse Hedge Index LLC It is an asset-weighted hedge fund index and includes only funds as opposed to separate accounts The index reflects performance net of all hedge fund component performance fees and expenses
CS LSI ex govt CHF The Liquid Swiss Index ex govt CHF is a market-capitalized bond index representing the most liquid and tradable portion of the Swiss bond market excluding Swiss government bonds The index is calculated by Credit Suisse
DAX The German Stock Index stock represents 30 of the largest and most liquid German companies that trade on the Frankfurt Exchange
DXY A measure of the value of the US dollar relative to the majority of its most important trading partners The US Dollar Index is similar to other trade-weighted indices which also use the exchange rates from the same major currencies
Eurostoxx 50 Eurostoxx 50 is a market-capitalization-weighted stock index of 50 leading blue-chip companies in the Eurozone
FTSE EPRANAREIT Global Real Estate Index Series The FTSE EPRANAREIT Global Real Estate Index Series is designed to represent general trends in eligible real estate equities worldwide
Hedge Fund Barometer The Hedge Fund Barometer is a proprietary Credit Suisse scoring tool that measures market conditions for hedge fund strategies It comprises four components liquidity volatility systemic risks and business cycle
Japan Topix TOPIX also known as the Tokyo Stock Price Index tracks all large Japanese companies listed in the stock exchanges first section The index calculation excludes temporary issues and preferred stocks
JPM EM hard curr USD The Emerging Market Bond Index Plus tracks the total return of hard-currency sovereign bonds across the most liquid emerging markets The index encompasses US-denominated Brady bonds (dollar-denominated bonds issued by Latin American countries) loans and Eurobonds
JPM EM local curr hedg USD The JPMorgan Government Bond Index tracks local currency bonds issued by emerging market governments across the most accessible markets for international investors
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 19
MSCI AC AsiaPacific The MSCI All Country Asia Pacific Index captures large and mid cap representation across 5 developed market countries and 8 emerging markets countries in the Asia Pacific region With 1000 constituents the index covers approximately 85 of the free float-adjusted market capitalization in each country
MSCI AC World The MSCI All Country World Index captures large and mid cap representation across 23 developed markets and 23 emerging market countries With roughly 2480 constituents the index covers around 85 of the global investable equity opportunity set
MSCI Emerging Markets MSCI Emerging Markets is a free-float-weighted Index designed to measure equity market performance in global emerging markets The index is developed and calculated by Morgan Stanley Capital International
MSCI EMU The MSCI EMU Index (European Economic and Monetary Union) captures large and mid cap representation across the 10 Developed Markets countries in the EMU With 237 constituents the index covers approximately 85 of the free float-adjusted market capitalization of the EMU
MSCI Europe The MSCI Europe Index captures large and mid cap representation across 15 developed markets countries in Europe With 442 constituents the index covers approximately 85 of the free float-adjusted market capitalization across the European developed markets equity universe
MSCI UK The MSCI United Kingdom Index is designed to measure the performance of the large and mid cap segments of the UK market With 111 constituents the index covers approximately 85 of the free float-adjusted market capitalization in the UK
MSCI World MSCI World is an index of global equity markets developed and calculated by Morgan Stanley Capital International Calculations are based on closing prices with dividends reinvested
OECD Composite Leading Indicators OECD Composite Leading Indicators (CLIs) are designed to provide early signals of turning points in business cycles with components that measure early stages of production respond to changes in economic activity and are sensitive to expectations of future activity
Purchasing Managers Indices Purchasing Managers Indices (PMIs) are economic indicators derived from monthly surveys of private-sector companies The two principal producers of PMIs are Markit Group which conducts PMIs for over 30 countries worldwide and the Institute for Supply Management (ISM) which conducts PMIs for the United States The indices include additional sub-indices for manufac-turing surveys such as new orders employment exports stocks of raw materials and finished goods prices of inputs and finished goods and services
Russell 1000 Growth Index The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe based on 1000 large-cap companies with higher price-to-book ratios and higher forecast growth values
Russell 1000 Index The Russell 1000 Index is a stock market index that represents the highest-ranking 1000 stocks in the Russell 3000 Index (encompassing the 3000 largest US-traded stocks with the underlying companies all incorporated in the USA) and representing about 90 of the total market capitalization of that index The Russell 1000 Index has a weighted average market capitalization of USD 81 billion and the median market capitalization is approximately USD 46 billion
Russell 1000 Value Index The Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe based on 1000 large-cap companies with lower price-to-book ratios and lower expected growth values
Switzerland SMI The Swiss Market Index is made up of 20 of the largest companies listed of the Swiss Performance Index universe It represents 85 of the free-float capitalization of the Swiss equity market As a price index the SMI is not adjusted for dividends
UK FTSE 100 FTSE 100 is a market-capitalization-weighted stock index that represents 100 of the most highly capitalized companies traded on the London Stock exchange The equities have an investibility weighting in the index calculation
US SampP 500 Standard and Poors 500 is a capitalization-weighted stock index representing all major industries in the USA which measures the performance of the domestic economy through changes in the aggregate market value
Abbreviations frequently used in reports
Abb Description Abb Description
3612 MMA 3612 month moving average IMF International Monetary Fund
AI Alternative investments LatAm Latin America
APAC Asia Pacific Libor London interbank offered rate
bbl barrel m bd Million barrels per day
BI Bank Indonesia M1 A measure of the money supply that includes all physical money such as coins and currency as well as demand deposits checking accounts and negotiable order of withdrawal accounts
BoC Bank of Canada M2 A measure of money supply that includes cash and checking deposits (M1) as well as savings deposits money market mutual funds and other time deposits
BoE Bank of England M3 A measure of money supply that includes M2 as well as large time deposits institutional money market funds short-term re-purchase agreements and other larger liquid assets
BoJ Bank of Japan MampA Mergers and acquisitions
bp Basis points MAS Monetary Authority of Singapore
BRIC Brazil Russia China India MLP Master Limited Partnership
CAGR Compound annual growth rate MoM Month-on-month
CBOE Chicago Board Options Exchange MPC Monetary Policy Committee
CFO Cash from operations OAS Option-adjusted spread
CFROI Cash flow return on investment OECD Organisation for Economic Co-operation and Development
DCF Discounted cash flow OIS Overnight indexed swap
DM Developed Market OPEC Organization of Petroleum Exporting Countries
DMs Developed Markets PB Price-to-book value
EBITDA Earnings before interest taxes depreciation and amortization PE Price-earnings ratio
ECB European Central Bank PBoC Peoples Bank of China
EEMEA Eastern Europe Middle East and Africa PEG PE ratio divided by growth in EPS
EM Emerging Market PMI Purchasing Managers Index
EMEA Europe Middle East and Africa PPP Purchasing power parity
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 20
EMs Emerging Markets QE Quantitative easing
EMU European Monetary Union QoQ Quarter-on-quarter
EPS Earnings per share rhs right-hand side (for charts)
ETF Exchange traded funds RBA Reserve Bank of Australia
EV Enterprise value RBI Reserve Bank of India
FCF Free cash flow RBNZ Reserve Bank of New Zealand
Fed US Federal Reserve REIT Real estate investment trust
FFO Funds from operations ROE Return on equity
FOMC Federal Open Market Committee ROIC Return on invested capital
FX Foreign exchange RRR Reserve requirement ratio
G10 Group of Ten SAA Strategic asset allocation
G3 Group of Three SDR Special drawing rights
GDP Gross domestic product SNB Swiss National Bank
GPIF Government Pension Investment Fund TAA Tactical asset allocation
HC Hard currency TWI Trade-Weighted Index
HY High yield VIX Volatility Index
IBD Interest-bearing debt WTI West Texas Intermediate
IC Credit Suisse Investment Committee YoY Year-on-year
IG Investment grade YTD Year-to-date
ILB Inflation-linked bond Personal Consumption An indicator of the average increase in prices for all domestic Expenditure (PCE defla- personal consumption tor)
Currency codes frequently used in reports
Code Currency Code Currency
ARS Argentine peso KRW South Korean won
AUD Australian dollar MXN Mexican peso
BRL Brazilian real MYR Malaysian ringgit
CAD Canadian dollar NOK Norwegian krone
CHF Swiss franc NZD New Zealand dollar
CLP Chilean peso PEN Peruvian nuevo sol
CNY Chinese yuan PHP Philippine peso
COP Colombian peso PLN Polish złoty
CZK Czech koruna RUB Russian ruble
EUR Euro SEK Swedish kronakronor
GBP Pound sterling SGD Singapore dollar
HKD Hong Kong dollar THB Thai baht
HUF Hungarian forint TRY Turkish lira
IDR Indonesian rupiah TWD New Taiwan dollar
ILS Israeli new shekel USD United States dollar
INR Indian rupee ZAR South African rand
JPY Japanese yen
Important information on derivatives
Pricing Option premiums and prices mentioned are indicative only Option premiums and prices can be subject to very rapid changes The prices and premiums mentioned are as of the time indicated in the text and might have changed substantially in the meantime
Risks Derivatives are complex instruments and are intended for sale only to investors who are capable of understanding and assuming all the risks involved Investors must be aware that adding option positions to an existing portfolio may change the characteristics and behavior of that portfolio substantially A portfoliorsquos sensitivity to certain market moves can be heavily impacted by the leverage effect of options
Buying calls Investors who buy call options risk the loss of the entire premium paid if the underlying security trades below the strike price at expiration
Buying puts Investors who buy put options risk loss of the entire premium paid if the underlying security finishes above the strike price at expiration
Selling calls Investors who sell calls commit themselves to sell the underlying for the strike price even if the market price of the underlying is substantially higher Investors who sell covered calls (own the underlying security and sell a call) risk limiting their upside to the strike price plus the upfront premium received and may have their security called away if the security price exceeds the strike price of the short call Additionally the investor has full downside participation that is only partially offset by the premium received upfront If investors are forced to sell the underlying they might be subject to taxing Investors shorting naked calls (ie selling calls but without holding the underlying security) risk unlimited losses of security price less strike price
Selling puts Put sellers commit to buying the underlying security at the strike price in the event the security falls below the strike price The maximum loss is the full strike price less the premium received for selling the put
Buying call spreads Investors who buy call spreads (buy a call and sell a call with a higher strike) risk the loss of the entire premium paid if the underlying trades below the lower strike price at expiration The maximum gain from buying call spreads is the difference between the strike prices less the upfront premium paid
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 21
Selling naked call spreads Selling naked call spreads (sell a call and buy a farther out-of-the-money call with no underlying security position) Investors risk a maximum loss of the difference between the long call strike and the short call strike less the upfront premium taken in if the underlying security finishes above the long call strike at expiration The maximum gain is the upfront premium taken in if the security finishes below the short call strike at expiration
Buying put spreads Investors who buy put spreads (buy a put and sell a put with a lower strike price) also have a maximum loss of the upfront premium paid The maximum gain from buying put spreads is the difference between the strike prices less the upfront premium paid
Buying strangles Buying strangles (buy put and buy call) The maximum loss is the entire premium paid for both options if the underlying trades between the put strike and the call strike at expiration
Selling strangles or straddles Investors who are long a security and short a strangle or straddle risk capping their upside in the security to the strike price of the call that is sold plus the upfront premium received Additionally if the security trades below the strike price of the short put investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short put and will also experience losses in the security position if they owns shares The maximum potential loss is the full value of the strike price (less the value of the premium received) plus losses on the long security position Investors who are short naked strangles or straddles have unlimited potential loss since if the security trades above the call strike price investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short call In addition they are obligated to buy the security at the put strike price (less upfront premium received) if the security fin-ishes below the put strike price at expiration
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 22
Important information on mutual funds Fees and charges etc Different types of fees and commissions (subscription fee amount which must be retained in trust assets repurchase fee etc) are charged when investment trustsfunds are purchased and sold In addition apart from these fees and commissions trust and management fees and other fees (audit fee trust administrative charges carried interest etc) are charged and borne by you through your trust asset Fees and commissions borne by you will be a sum of these amounts Such fees and commissions vary depending on the investment trustfund and depending on the investment status and therefore we cannot provide specific amounts or calculation methods
For detailed information on fees and commissions etc of each re-spective investment trustfund please refer to the pre-contract documents (prospectus and other supplementary documents)
Important information on dividends bull Dividends are different to interest on deposits and are paid from the net asset value of investment trustsfunds Therefore when dividends are paid the base value (net asset value per unit) will decrease by an amount equivalent to the amount paid
bull Dividends may be paid exceeding the profit earned during the calculation period (trading profit including profits of dividends etc after expenses) In this case the base value (net asset value per unit) on the settlement date in this period will decrease compared to that on the settlement date in the previous period Also the level of dividends does not always reflect the rate of return for the investment trustfund during the calculation period
bull A part or all of dividends may be virtually equivalent to some repayment of the principal depending on the purchase price of the investment trustfund by an investor The same can be applied to a case that an increase in the base value (net asset value per unit) is smaller than a dividend amount due to the investment status after purchase of the investment trustfund
Please refer to the prospectus for details
Explanation of major risks (description pursuant to Ar-ticle 37 (Regulation on Advertising etc) of the Financial Instruments and Exchange Act etc) The risks described below are a summary of some general risks of investment trustsfunds (risks which have an impact on net asset value) and do not cover all risks Please refer to the pre-trade documents (prospectus and other supplementary documents)
Price volatility risk Investment trustsfunds invest mainly in equities bonds and derivative products etc The value of the investment trustfund will go up or down due to increases or decreases in the prices of such investments Further the value of such investments will be impacted by political and economic factors the financial standing of an issuer market demand and supply interest rates and other factors
Foreign currency risk Investment trustsfunds which invest in equities or bonds etc denominated in foreign currencies entail a foreign currency risk and the base value (or net asset value) of investment trustsfunds may change depending on the currency exchange rate Even when you do not experience a loss of invest-ment principal when calculated in the base currency you may suffer a loss at conversion into Japanese yen due to fluctuations in exchange rates Fur-thermore investment trustsfunds which utilize currency trading among multiple currencies may incur costs due to such currency trading depending on the difference in short-term interest rates between the currencies and you may suffer a loss
Credit risk For investment trustsfunds which invest in equities or bonds etc the prices of these investments may increase and decrease due to changes in the business or financial standing of the issuer and other factors and you may suffer a loss
Risk pertaining to liquidity Where there is sudden high volume in a particular investment or when sudden changes in the external environment surrounding markets triggers a sudden downturn in a market or period of market turmoil etc investments may not be flexibly traded In such a case a decline in the price of the investment may impact the base value (or net asset value) of the investment trust result-ing in a loss Further the management company may decide to stop calcu-lation of net asset prices or suspend sell or redemption claims
In addition for certain types of investment trustfund there is a risk that particular investments may be designated to a separate account (or side pocket) due to a lack of liquidity When a separate account is utilized by in-vestment trustsfunds restrictions may apply as to when such investments can be liquidated through a sell or redemption claim and there may be a re-striction in the timing or form of redemption claim permissible In particular for Fund of Fund investments when an investment trustfund makes an in-vestment without time limit in another fund the investment trustfund may be influenced by investment results in the other funds
Risk associated with an outflow of money received from sales orders When there is a large volume of sale orders in a short period of time the investment trustfund may be forced to sell structured securities at a lower rate than the prevailing market price to refund monies to investors and as a result you may suffer a loss Also alternative investment trustsfunds gen-erally have a limitation in selling or cashing out the investment compared to traditional investment trustsfunds Many alternative investment trustsfunds only accept a sell or redemption order on a monthly or quarterly basis and therefore you may not be able to rapidly exit the investment in for example times of economic uncertainty
Redemption risk Investment trustsfunds may become subject to mandatory redemption due to a certain reason For details please refer to the pre-trade documents (prospectus and other supplementary documents) before subscription
Concentration risk Investment trustsfunds which invest in a certain investment product or similar investment product group may significantly decrease in value (net asset value) under severe market circumstances
Country risk When changes in political economic and social conditions in investment destination countries and regions cause a dislocation in financial and security markets security prices may significantly change Also investments in emerging markets involve unique risks including small market size and trade volume political and social uncertainties undeveloped market infrastructure such as a clearing system undeveloped information disclosure system and legal system by supervising authorities large fluctuations in exchange rates restrictions on currency remittance to foreign countries and other factors and therefore may have larger price fluctuations compared to investments in major developed markets
Important information on non-Japanese stocks Please refer to the issuer information when you purchase non-Japanese stocks
Disclaimer This material is published solely for information purposes and is intended for the recipientrsquos sole use Credit Suisse does not represent or warrant its ac-curacy or completeness The material is not directly or indirectly intended for any investment solicitation and does not constitute an invitation or offer to conclude a transaction contract for financial instruments etc Credit Suisse accepts no liability for loss arising from the use of the information in this material It is recommended that you consult with the third party professional advisors as to legal or tax issues etc This material should not be reproduced or quoted without the prior express written consent of Credit Suisse The information and opinions expressed in this material were produced by Private Banking Division at Credit Suisse as of the date of writing and are subject to change without notice Views expressed in respect of particular investment products in this material may be different from or inconsistent with the ob-
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 23
servations and views of other divisions besides Private Banking due to the differences in evaluation criteria This material is solely distributed in Japan by Credit Suisse Securities (Japan) Limited Credit Suisse Securities (Japan) Limited will not distribute or forward it outside Japan
You may incur a loss as a result of fluctuations in stock prices if you invest in stocks In relation to foreign stocks you may incur a loss in such stocks due to foreign exchange rate fluctuations etc The market value of bonds is affected by interest rate fluctuations or changes in the financial standing of any issuer etc as such you may incur a loss if you sell such bonds before they are redeemed In relation to foreign bonds you may incur a loss in such bonds due to foreign exchange rate fluctuations etc The net asset value of mutual funds can fall as well as rise due to price changes of underlying stocks bonds etc and foreign exchange rate fluctuations and this may cause you to incur a loss
Structured securities and derivatives are complex instruments 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 of any structured security or transaction may be affected by changes in financial market conditions reference indices volatility and the credit quality of any issuer or reference issuer
Furthermore there are structured securities on which you may incur a loss since the redemption amounts are linked with fluctuations in reference indices etc There are also derivatives on which potential losses may exceed the amount of the initial investment Commission rates for any transactions will be as per the rates agreed between Credit Suisse and you For transactions conducted on a principal to principal basis between Credit Suisse and you the purchase or sale price will be the total consideration Transactions con-
ducted on a principal to principal basis including over the counter derivatives transactions will be quoted as a purchasebid price or selloffer price and for which a difference or spread may exist Charges in relation to transactions will be agreed prior to dealing as per our requirements under the Financial Instruments and Exchange Law
By purchasing financial instruments etc you may incur a loss or a loss in excess of the principal as a result of fluctuations in market prices or other financial indices etc Please read carefully the Pre-Contract Documentation provided for an explanation of associated risks and commissions etc of individual financial instruments etc prior to purchase Please contact your Relationship Manager if you have any questions
UNITED STATES NEITHER THIS REPORT NOR ANY COPY THEREOF MAY BE SENT TAKEN INTO OR DISTRIBUTED IN THE UNITED STATES OR TO ANY US PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE US SECURITIES ACT OF 1933 AS AMENDED)
Credit Suisse Securities (Japan) Limited Financial Instruments Dealer Di-rector-General of Kanto Local Finance Bureau (Kinsho) No 66 a member of Japan Securities Dealers Association Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association
Copyright copy 2021 Credit Suisse Group AG andor its affiliates All rights reserved
21C013A_IS_J
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 24
Imprint
Publisher Credit Suisse Private Banking amp Wealth Management Investment Solutions amp Products
Information about other Investment Solutions amp Products publications Internet httpsinvestmentcredit-suissecom
Intranet (for employees only) httpsisrcsintranet
Subscription (clients) Please contact your customer advisor to subscribe to this publication
Subscription (internal) For information on subscriptions please visit httpisrcsintranetsubscriptions
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 25
Japan asset allocation
Review of our portfolio allocations The annual review of our Strategic Asset Allocation leads us to reduce our allocation to bonds in portfolios and increase allocations to equities and alternative investments
Soichiro Matsumoto Investment map (regions vs asset classes) Chief Investment Officer Japan
Annual review of our Strategic Asset Allocation Every year Credit Suisse updates its macro market forecasts (risk and return potential) for the next five years and publishes these forecasts in the form of our Capital Market Assumptions (CMA) Based on the new CMA we have review and update our our medium-term asset allocation benchmarks also known as our Strategic Asset Allocation (SAA)
For our 2021 SAA the allocation to bonds has decreased due to lower expected returns while our allocations to equities and alternative investments have increased Source Credit Suisse
(16022021)
JPY international tactical asset allocation (TAA balanced) Balanced TAA Vs benchmark Benchmark SAA 2021
January February Change January February
Liquidity 20 40 20 -30 -10 50
JPY 20 40 20 -30 -10 50
Fixed income 465 315 -150 -10 -10 325
JPY 25 35 10 -15 -05 40
Global corporates 330 180 -150 -15 -15 195
Global high yield 30 30 00 00 00 30
Emerging markets bond USD 40 30 -10 10 00 30
Emerging markets USD corporate 00 40 40 NA 10 30
Equity Emerging markets bond LC 40
445 00 520
-40 75
10 20
NA 20
00 500
Japan 155 180 25 -10 -10 190
World (ex Japan) 290 340 50 30 30 310
Switzerland 05 05 00 00 00 05
Eurozone 25 25 00 00 00 25
North America 125 150 25 00 00 150
United Kingdom 20 20 00 10 10 10
Australia 05 05 00 00 00 05
Emerging markets 50 60 10 20 20 40
LatAm 00 00 00 00 -05 05
APAC 45 50 05 20 20 30
EMEA 05 05 00 00 00 05
Supertrends 60 75 15 00 00 75 Alternative investments 70 125 55 20 00 125
Real estate Japan 25 25 00 00 00 25
Hedge fund 00 25 25 NA 00 25
Private equity 00 75 75 NA 00 75
Commodities 45 00 -45 20 NA 00 Total 1000 1000 00 00 00 1000
Source Credit Suisse
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 6
Supertrends
Supertrends Investmentsolutions In this installment we focus on the ldquoClimate changerdquo Supetrend and suggest investment solutions from sectors that can contribute significantly to reducing greenhouse gas emissions as well as mitigating long-term impacts of global warming
Maki Shimizu Investment Strategist - Japan Strategy
Policy tailwinds The ldquoClimate changerdquo theme is strongly influenced by policy factors hence we expect the recent change of government in the USA to lead to renewed interest in environmental policy issues On his first day in office last month US President Joe Biden announced his countryrsquos return to the Paris Agreement ndash an international framework for combating global warming ndash and began to shift policy course from the previous adminis-tration On environmental issues it may be difficult to reverse the international communityrsquos distrust and skepticism of the USA brought about by the ldquoAmerica Firstrdquo approach of the past four years However shifting to renewable energy sources is one of the major policy targets of President Biden and international cooperation on this issue will likely be gen-uinely welcomed
Currently countries that have ratified the Paris Agreement are struggling to meet their targets for reducing emissions by 2050 As policy support increases business opportunities related to environmental policy are likely to expand at the private sector level Here we focus on sectors that fall under this Supertrend because of their ability to contribute signifi-cantly to reducing greenhouse gas emissions and mitigating long-term impacts of global warming
Investment solution features A common catchphrase for all four sub-themes associated with this Supertrend is ldquosustainable energy supplyrdquo With the Paris Agreementrsquos goal of ldquocarbon neutralityrdquo in mind we look for investment opportunities arising out of a structural transformation in the energy sector via carbon-free electricity sustainable transportation pioneering oil and gas energy conversion and agriculture and food sub-themes We high-light climate change-related companies that primarily develop renewable energy and provide energy storage technologies
Besides companies that are likely to see continued growth via the long-term shift in energy policy we highlight others that are likely to reform the agriculture sector by incorporating automation in their production processes Additionally we highlight related entries from our environmental social and
governance (ESG) related stock list (ESG Top 25) that were discussed in the recent Supetrends report In mutual funds in addition to the Global Security Fund we offer solutions that enable investment in areas related to rising climate change awareness from an ESG perspective
(17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 7
Supertrends
Theme Detail Recommended solution
Anxious societies ndash Inclusive capitalism
AM One Global Security Stock Fund CS Beneficiaries of Anxious Societies Selection
Affordability Basis goods such as housing healthcare and pension have become unaffordable for many people
Employment Skilling reskilling and upskilling are crucial steps as technical progress radically changes required skill set
Personal security Everyday challenges such as the pandemic outbreak or cybersecurity are the most important pain points for people
Infrastructure ndash Closing the Global Core Infrastructure Stock gap Fund CS Infrastructure List
Transport Developed markets have to invest in project replacements while emerging markets continue to spend on growth
Energy amp water Energy transition toward renewables to limit global carbon emission Middle East faces an acute water shortage
Smart cities As 68 of the worldrsquos population will live in urban areas by 2050 cities must become smarter to handle this strong growth
Telecom infrastructure As 5G will be the next major investment cycle for the mobile industry mobile traffic may grow almost five-fold
Technology at the service of AM One Global Security Stock humans Fund CS Technology Selection
Digitalization The number of connected devices is surging and thus edge computing is expected to gain traction in order to capture even more value from data
Virtual reality Growing to the size of todayrsquos smartphone market in the years ahead
Artificial intelligence (AI) Material growth potential for home industries and cities digitalization and healthtech and fintech markets
Industry 40 Robots and automation are entering various non-industry sectors demand for industry robots is rising
Healthtech Digitalization solution biotechnology and AI in product development and healthcare research Silver economy ndash Investing for Select Sector SPDR ETFs (Health-population aging care Consumer Staples Consumer
Discretionary) CS Silver Economy Stocks
Therapeutics amp devices Biopharma and medical device companies to innovate around senior conditions such as heart disease amp cancer
Care amp facilities Managed care organizations hospitals and dedicated facilities to face increasing demand
Health amp life insurance Private pension gap in emerging markets and growing importance of private pension fund amp insurance solutions
Senior consumer choices High spending power of seniors to benefit consumer companies with senior-centric offerings Millennials values AM One Global Security Fund CS
Millennials Favorites
Sustainable business and invest- ESG overlay across the entire millennials stock universe to underpin the importance of sustainability ments
Digital natives Being connected 247 having a strong preference for technology brands driving an education technology revolution
Fun health amp leisure A new way of living and spending with substantial growth potential in emerging markets Climate change AM One Global Security Fund CS
Climate Change Choice ESG Top 25 promotion list
Carbon-free electricity CO2-neutral electricity production and the replacement of coal-fired electricity as a key component of CO2 reduction
Oil amp gas transition pioneers Demand for fossil fuel remains high for now while the transition pioneers will be leading the sector
Sustainable transport Sustainable fuels a switch to electric vehicles more efficient engines and railroads will reduce greenhouse gas (GHG) emissions
Agriculture amp food A growing population and a high CO2 emission from the agriculture sector require efficiency gains
Source Credit Suisse
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 8
Economics
Positive growth outlook beyondwinter soft patch After a likely soft patch in the winter months we expect very strong growth this year
The main risk to our near-term forecast is new virus strains that may necessitate further shutdowns
James P Sweeney Chief Economist and Regional CIO Americas
Peter James Foley Economist
Global growth rebounded strongly in the second half of 2020 We expect a winter soft patch most noticeable in Europe as viral contagion leads to mobility restrictions that hamper service sector activity Beyond that the growth outlook is very positive
Global demand has recently been propped up by developed market households Real retail sales in developed economies have exceeded pre-pandemic levels since September and are now above the long-term trend Business investment has risen too but not as much as consumption The onus is on business investment to drive the recovery further
A dominant feature of the pandemic economy has been the contrast between goods demand which has recovered sharply and services demand which has suffered due to social distancing The divergence is likely to unwind this year as spending that was redirected to goods in 2020 returns to services in 2021 Services consumption in developed market economies is about twice as large as goods consumption and is likely to increase strongly this year as vaccine rollouts support an expansion of activity
In that sense consumer spending on services might substitute some goods spending But at the same time a resurgent service sector may give further tailwinds to the goods sector through business spending
Uncertainties about variants vaccines and stimulus COVID-19 infections are falling in Europe and the USA But new highly contagious strains risk new or extended shut-downs which are the main downside risk to our near-term forecast
Vaccine rollout has not been smooth but the USA and UK will likely vaccinate a sufficient share of their populations by this summer that a strong services recovery is likely Europe and other major economies lag behind which may mean longer restrictions on activity Normalization appears to be out of reach before Q3 in large economies but vaccinations will support increased mobility
The USA is likely to pass another pandemic stimulus bill soon It will likely cost at least half the USD 19 tn price tag of the original plan but even this reduced size will substantially affect the US growth outlook Direct checks to households will im-mediately boost consumer spending and increase household savings further
There is less uncertainty over Eurozone policy support but it may not be forceful enough Europersquos fiscal policy so far has focused on mitigation rather than stimulation But this means that as the economy recovers fiscal support will fade meaning limited upside to growth The European Central Bank has stated it can ease policy further but it is unclear whether this will boost lending in the real economy
Last yearrsquos contraction in the Eurozone was larger than in the USA But the rebound is likely to be weaker We expect Eu-rozone GDP to grow 50 in 2021 while US GDP should grow 57 (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 9
Global investment strategy
Retain preference for EM equities Continued fiscal and monetary policy support and an easing of the pandemic should help Western economies see strong growth in the second half of the year
We retain a cyclical tilt in portfolio allocations through overweight positions in equities with a preference for EM equities and commodities
Philipp Lisibach Chief Global Strategist
The Credit Suisse Investment Committee (IC) has reduced emerging market hard currency (EM HC) sovereign bonds to strategic allocations and changed the return outlook for devel-oped market investment grade (IG) bonds from attractive to neutral Equity allocations are kept at overweight with a continued preference for emerging markets The BCOM also remains at overweight
Reflation expected to support cyclical assets Even though the pandemic continues to weigh on economic activity falling infection rates and hospitalizations alongside vaccine rollouts should allow economies to reopen In combi-nation with continued fiscal and monetary policy support Western economies are likely to see exceptionally strong growth in the second half of 2021 The USA is currently benefiting from a second relief package which is likely to be followed by a third one soon adding fuel to the expected concerted recovery
As such the IC keeps a cyclical bias in portfolio allocations expressed by overweights in equities and the broad commod-ity index (BCOM) In equities we continue to express a pref-erence for emerging markets specifically Chinese equities which show strong price momentum having outperformed global equities since the start of the year Although China has initiated policy-tightening measures we think it will take these steps in a controlled manner without risking denting market sentiment
Risk of inflation scare mitigated by central bank com-mitments Besides the risk that new virus strains with potential resistance to vaccines may fuel market concerns markets could start consolidating in coming months should a rise in US inflation
due to base effects lead to an inflation scare Although we think that such an inflation increase will be temporary uncer-tainty about the outlook for the second half is elevated due to the expected strong growth and likely supply-side bottle-necks as economies reopen To mitigate this risk the contin-ued commitment by central banks above all the US Federal Reserve (Fed) to keep financial conditions easy will be key Recent comments by Fed Chair Powell stressing patience and suggesting that the economy is far from overheating give us confidence that this key market support will stay in place For real assets such as equities and commodities this should continue to prove beneficial
Tight credit spreads Although the anchoring of treasury yields for shorter maturities via central banksrsquo rate guidance should prevent a sudden surge in longer-dated yields we expect them to grind higher as growth momentum builds Thus performance is expected to continue to suffer and the IC is keeping government bonds at underweight Due to tight IG credit spreads the IC has reduced the return outlook for IG from attractive to neutral For EM HC sovereign bonds we take profit on our successful overweight and cut portfolio allocations back to strategic levels as spreads have eroded Investors should find more value in EM HC corporate as well as selected EM local sovereign bonds Despite some USD consolidation at the start of this year the USD is likely to continue its weakening trend against other major currencies in coming months
Watch a video featuring the highlights of the Credit Suisse investment strategy wwwcredit-suissecomciofilm
(15022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 10
Special topic
ESG Integrated Investing according to environmental social and governance (ESG) criteria is in the process of becoming mainstream
Combining the House View with ESG convictions ldquoESG Integratedrdquo is a set of best ideas for investors to gradually transition to multi-asset portfolios that perform solidly both on traditional financial performance metrics and on ESG metrics ldquoESG Integratedrdquo is part of our Signature Convictions
Nannette Hechler-Faydherbe Chief Investment Officer ndash International Wealth Management
Jessie Gisiger Head of Credit Strategy and Investment Themes
Green transitions are at the heart of the fiscal spending and recovery plans put in place in response to the COVID-19 pandemic Against this backdrop strong regulatory momen-tum and fiscal ambitions in the USA Europe and China have only added to a global trend toward integrating ESG criteria at every level of economic activity
There is growing evidence that adhering to ESG criteria not only helps to mitigate our impact on climate change but also supports financial risk-reward for several reasons First be-sides increasing transparency and awareness ESG filters help keep in check the risk of heightened regulatory scrutiny that non-ESG-compliant business practices increasingly face Second ESG factors can impact financial business conditions such as the incurred cost of capital Focusing on good gover-nance and keeping an eye on regulatory risk are equally likely to be beneficial when considering default risk in the corporate bond market Third there are strong investment themes emerging from the policy support currently developing espe-cially in climate change to achieve net-zero carbon emissions by 2050
Signature Convictions ESG Integrated Combining key elements of the Credit Suisse House View with thematic priorities in ESG investing that emerge from these catalysts we have developed a set of best ideas (see table) that can help investors gradually transition their invest-ments toward multi-asset portfolios that perform solidly on both traditional financial performance metrics as well as ESG metrics
In fixed income ESG emerging market corporate bonds and ESG subordinated bonds offer investors an avenue to earn a yield pick-up but at a lower risk of credit spread widening than the broader index Empirical assessments have also shown that companies with higher ESG scores tend to have a lower probability of default Investors looking for an equiva-lent to money-market instruments may consider impact invest-ments which deliver low single-digit returns with limited vola-tility
In equities we highlight the Supertrends climate change and sustainable infrastructure as two key ESG-related themes that are focused on decarbonizing economic activity and are catalyzed by global regulatory momentum For investors looking for single-stock investments our Credit Suisse ESG Top 25 list includes stocks from our high conviction list that are in category 3 (ldquoESG awarerdquo) or category 4 (ldquoThematicrdquo) of our Credit Suisse ESG classification framework
Investors who would like to invest according to our preference for EM equities also have the option of doing so in an ESG-compliant manner through the MSCI Emerging Markets ESG Leaders Index That index has on average outperformed the MSCI Emerging Markets Index since 2008 This outperfor-mance can be explained by the MSCI Emerging Markets ESG Leaders Indexrsquos higher exposure to growth sectors and strong orientation to new economy sectors that benefit from powerful structural growth drivers Separately green real estate is likely to lead to higher occupancy rates and a lower probabil-ity of income loss resulting in a more stable income stream
For investors looking to alternative investments for further diversification impact private equity sustainable alpha hedge fund and carbon emission allowance futures are also interest-ing
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 11
Signature Convictions ESG Integrated
Source Credit Suisse
(16022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 12
Special topic
Bullish hopes in Chinarsquos Year ofthe Ox Our positive view on equities remains in place We express it through a preference for emerging market particularly Chinese equities
After strong gains so far this year we challenge the quality and longevity of Chinarsquos bull market and explain why we remain optimistic
John William Huia Woods CIO APAC
Just ahead of Chinese New Year Chinarsquos benchmark Shanghai Composite Index surged to new highs for the year Chinarsquos strong market gains are fueled by a rush of excess liquidity the likes of which we have not seen since 2015 But experienced investors will know that a rising tide can just as easily ndash and quickly ndash turn into an ebbing tide particularly when fundamentals become unsupportive
Red flags In fact red flags are not hard to find Possibly the most im-portant observation is that Chinarsquos growth momentum has passed its peak and will likely decelerate into 2021 A decel-erating economy does not necessarily hurt a bull market but it does not necessarily help it either
Equally important is the view that Chinarsquos ndash increasingly less dovish ndash authorities are unlikely to further stimulate the economy It has been widely observed that they remain vigilant and concerned toward the possible formation of price bubbles in real and financial assets including equity markets
Indeed the Peoplersquos Bank of Chinarsquos willingness in late January 2021 to withdraw rather than add CNY 570 bn of liquidity from interbank markets ahead of the Chinese New Year suggests that a clear inflection point has been reached with monetary policy now normalizing after two years of stimulus and easy money
Amid decelerating economic growth corporate revenues are under pressure meaning analyst earnings revisions are flat-lining and thus failing to keep pace with more vibrant emerging andor developing markets In absolute terms weaker earn-ings exert upward pressure on valuations Yet a liquidity-driven rally can still push valuations higher
Imbalance The liquidity-centric imbalance at the heart of Chinarsquos bull market leaves it exposed and vulnerable to correction in our opinion An environment of tightening monetary policy decel-erating growth and stretched valuations are generally not conducive to sustained price appreciation In fact in Chinarsquos case incrementally greater inflows of liquidity will be required to sustain existing price levels At least from an onshore per-spective the music will stop
Intriguingly attention is now turning to foreign investor inflows which hitherto have been muted But there are reasons why a rebound in sentiment might be expected including improving geopolitical sentiment with the new administration in the USA and expectation of CNY appreciation which should boost returns for USD investors Overall a reacceleration in flows could be a key factor in keeping Chinese markets supported
Sound diversification is key On balance at least for the next few months we remain overweight Chinese equities in a portfolio context Our funda-mental concerns are medium-term in nature while near-term risks ndash supported by liquidity ndash are tilted toward further price gains In line with our House View we emphasize the value of well-diversified exposure to EM equities overall
(15022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 13
Fixed income
EM HC corporate bonds preferred The ongoing reflationary path is going to support long-dated yields warranting a con-tinued cautious stance on government bonds
We reduce our allocation to EM HC sovereign bonds to benchmark weight We no longer see IG credit as attractive and prefer EM HC corporate bonds
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
Global benchmark yields have continued to trend higher in the last few weeks supported by reflationary expectations Despite the marketsrsquo repricing of more US fiscal stimulus the Federal Reserve (Fed) kept control of front-end rates expectations with the US yield curve further steepening as a result Going forward long-dated inflation expectations are still expected to be the main driver of nominal benchmark yields Both should moderately rise in tandem particularly in the USA With other developed regions following the same reflationary theme albeit with a lag we anticipate that global government bonds will remain an unattractive investment We therefore keep exposure below benchmark allocations in portfolios Furthermore we keep a relatively short duration stance in US Eurozone and Swiss bond markets and prefer US inflation-linked bonds over comparable nominal govern-ment bonds
IG credit no longer attractive prefer EM HC corporate bonds We no longer think that global investment grade (IG) credit offers attractive return potential While monetary policy re-mains supportive IG spreads are already at historical lows and no longer offer enough compensation against the further rise in benchmark yields we expect Global high yield (HY) credit market returns should remain attractive thanks to policy support and the economic recovery we project However we
see limited further spread compression potential in US HY and European HY from the current historical lows We believe emerging market hard currency (EM HC) corporate bonds are most attractive within credit with pro-cyclical emerging markets benefiting from the global growth rebound expected this year At the same time and due to their comparatively low benchmark duration EM HC corporate bonds are less sensitive to higher US government yields than global IG EM HC corporates on average provide similar credit fundamentals to developed market credit but offer more attractive spreads amid the current reflationary environment Also we see more opportunities in EM HC HY corporates particularly in Asia where spreads offer a premium of around 200 bp over US HY
EM HC sovereigns reduced to benchmark allocation EM HC sovereign bond valuations are currently tight with spreads not far off the lows reached after the great financial crisis Inflation has largely bottomed out due to base effects food and energy prices and there is limited scope for further monetary stimulus EM HC sovereign bond spreads have a high correlation with US Treasury yields With the latter still on the rise risks to EM HC sovereign bonds are increasing Positioning is at record highs and flows continue to acceler-ate This suggests that a further strong performance is less likely Given these considerations we have decided to reduce EM HC sovereign bonds to benchmark allocation in our portfolios (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 14
Equities
Remain constructive on globalequities We maintain our attractive return outlook for global equities with a preference for emerging markets UK Germany financials materials and health care
After a double-digit earnings decline in 2020 global earnings are set to recover sharply this year
Marc Haumlfliger Global Equity Strategist
We maintain our attractive return outlook for global equities on the back of supportive monetary conditions vaccine roll-outs growing stimulus prospects and our constructive outlook for economic and earnings growth While traditional valuation metrics remain elevated they look less stretched relative to other asset classes such as global treasury bonds The earnings recovery is key to our thesis of attractive returns for global equities as we do not expect further re-ratings (ie higher multiples) to drive equity markets going forward So far the Q4 earnings results underpin our view that companies have learned how to deal with the current circumstances given earnings results are mostly surpassing projections As a result of this strong showing global EPS growth rates (YoY) will likely be positive again for the Q4 2020 earnings season After an overall double-digit earnings decline in 2020 global earnings are set to recover sharply this year ndash particularly in cyclical market segments Risks to our constructive view on equities come from COVID-19 concerns (mutation potential vaccine disappointments) disappointing fiscal stimulus or earlier-than-expected comments about a withdrawal of mon-etary stimulus
In a portfolio context we keep our overweight in emerging market (EM) equities as we remain bearish on the USD ex-pect higher commodity prices and see the re-opening environ-ment as positive for EM equities We expect cyclical segments that lagged the broader equity benchmark in 2020 ndash such as the UK Germany and financials ndash to catch up amid the im-proved economic outlook and rising inflation expectations
Latest view changes In developed market equities we turn neutral from outperform on Hong Kong equities as a result of their strong performance in recent weeks and increasing macro headwinds In EM eq-uities we now expect South African equities to outperform driven by attractive valuation a strong earnings picture and an accommodative central bank We no longer expect Indian equities to underperform and turn neutral following the gov-ernmentrsquos pro-growth budget announcement an improved macroeconomic outlook and earnings estimates being revised higher at a faster pace than peers
Earnings expected to recover in 2021
Last data point 09022020 Historical performance indications and financial market
scenarios are not reliable indicators of current or future performance Source Factset
Estimates Credit Suisse
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 15
Alternative investments
Still positive on commodities Commodity performance has been strong year-to-date A near-term pause is possible but we retain a positive view and prefer diversified exposure with a cyclical bias
Despite recent resilience we expect listed real estate to lag equities In hedge funds we highlight opportunistic long-short discretionary and EM macro managers as well as private credit
Jelena Kucenko Head of Alternative Investments
Stefan Graber Head of Commodity Strategy
Hedge funds Be selective Hedge funds were flat in January as short covering activity at month-end erased initial gains Fundamental long-short and macro funds suffered the most while relative value and event driven were more resilient Our Trading Conditions Barometer is in favorable territory Combined with regional and sector divergences arising from vaccine rollouts compli-ance with environmental social and governance criteria and record levels of capital-market activity this creates opportuni-ties for long-short managers We also highlight private credit strategies with a focus on consumer loans and mid-market companies which should benefit from resilient household fi-nances and a post-pandemic recovery Discretionary and emerging market (EM) macro managers are preferred in case of market setbacks
Commodities Providing cyclicality and inflation hedge Commodities started 2021 on a strong note focusing on positive growth expectations instead of near-term COVID-19 concerns A near-term pause is possible as the latest gains came ahead of an anticipated reacceleration in industrial ac-tivity That said improved bottom-up fundamentals have flipped aggregate curves into backwardation translating into positive roll yields which may attract additional investor inter-est Commodities also provide a hedge should inflation sur-prise to the upside We retain our positive view on the asset class and favor diversified exposure with a cyclical tilt (oil energy) For oil the March OPEC+ meeting is the next event
risk and a potential source of volatility as the group will likely discuss supply hikes We still think that gold offers diversifica-tion and some upside but the bull run could be maturing as yield curves have started to steepen We thus tone down our optimism on the metal
Real estate Expected to underperform equities Listed real estate slightly outperformed global equities in January thanks to strong earnings results in logistics and a rebound in oversold retail companies as short sellers covered their positions But we believe that further upside potential for the sector is limited as the impact of lockdowns is not yet reflected in landlordsrsquo share prices in our view Additionally valuations in structurally resilient sectors such as logistics and data centers already reflect fundamentals This and the prospect of higher long-term yields and an increased risk of US regulatory headwinds reinforce our negative sector view
Private equity Backdrop still positive Robust investment activity at the end of last year pushed pri-vate equity deal values higher but the asset class still offers better priced opportunities than public markets Dry powder ndash committed but uninvested capital ndash is at a record of over USD 2 trn with subdued fundraising activity expected to re-bound as investors increase commitments in 2021 according to data provider Preqin The expected economic rebound is supportive for the asset class but rising long-term interest rates pose risk to financing costs We highlight strategies offering high growth with limited leverage (venture capital growth capital) and secondary funds which can exploit market opportunities tactically generating excess returns over time
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 16
Foreign exchange
Keep favoring cyclical currencies We maintain a short USD bias and prefer commodity and cyclical currencies such as the EUR GBP or SEK
Within our positive emerging market stance we particularly like the CNY KRW BRL and RUB
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
The USD was broadly flat against other major currencies over the last month Investorsrsquo focus on US fiscal stimulus and an expected rise in US inflation allowed for some normalization in previously large USD short positions While the repricing of near-term growth expectations also in light of a more rapid US vaccination campaign created temporary USD resilience we think this improvement is likely partly reflected in the USD already We maintain that as the Federal Reserve (Fed) keeps short-term rates close to zero for longer there is little room for sustained gains in the USD Moreover US fiscal stimulus will not only deteriorate fiscal balances but also deepen the current account deficit This will also benefit the global econ-omy through improved global trade and sentiment which should weigh on the USD Uncertainties relating to new COVID-19 variants and extended USD short positioning re-main a risk in the short term
Constructive on cyclical currencies A slow start to vaccine rollouts and renewed political risks in Italy somewhat dented sentiment toward the EUR in early February Even so the single currency remained stable vs the USD The Eurozone is facing a delayed recovery but this is consensus already and likely temporary in nature With political risks now subsiding the EU recovery fund operational in the next quarter and the global growth recovery benefitting the export-oriented Eurozone we think EURUSD can gain some further ground and target 124 in 3M Elsewhere in Europe we also remain positive on the SEK and the GBP
vs the USD With global reflation set to continue and com-modity prices likely to remain supported through the ongoing rebalancing we still favor commodity currencies in particular the NZD CAD and NOK
BRL RUB CNY and KRW preferred Emerging market (EM) currencies were broadly range-bound on an index level over the last month but with significant re-turn dispersion across currencies The main arguments sup-porting our attractive view on EM FX remain in place We continue to see further scope for a broad appreciation of EM FX versus the USD Even though the EM economic recovery has peaked economic activity still looks solid relative to de-veloped markets External positions remain in good shape and non-resident flows are still supportive In addition with inflation bottoming and food prices increasing scope for dovish EM central bank surprises seems to be exhausted This should be favorable for EM carry versus the USD
The RUB BRL CNY and KRW remain our preferred curren-cies in EM Both the RUB and BRL are cheaply valued Addi-tionally the RUB should profit from attractive risk-adjusted carry and the BRL from more hawkish central bank expecta-tions In Asia we remain positive on the CNY and KRW and neutral on the other Asian FX We lower our 3M USDCNY target to 635 but keep our 12M target at 625 Our USDKRW targets remain unchanged at 1060 and 1010 in 3M and 12M respectively We retain a mild downward bias on the other USDAsia pairs expecting broad USD weak-ness (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 17
Forecasts
At a glance More information on the forecasts and estimates is available Credit Selected indices on request Past performance is not an indicator of future
Yield Spread Duration 3M TR 12M TR fore-performance Performance can be affected by commissions () (bp) (years) forecast cast fees or other charges as well as exchange rate fluctuations BC Global Aggregate 091 33 731 -010 010
BC Global Treasuries 058 9 862 -030 -050
BC Global IG Corp 141 94 735 033 130 Central bank rate10-year government bonds BC Global HY Corp 429 378 416 062 247
CB rate 10Y JPM EMBI Global Di- 480 344 764 032 126 yield versified HC
in Spot 3M 12M Spot 3M 12M
CHF -075 -075 -075 -026 -030 -030 BC = Barclays Capital IG= Investment Grade JPM = JP Morgan (EMBI+) Index data as of 1522021 Forecast as on 1522021
EUR -050 -050 -050 -035 -030 -030 These forecasts are no reliable indicators of future performance Source Bloomberg
USD 013 000-025 000-025 130 140 150 Credit Suisse GBP 010 010 010 062 050 060
AUD 010 010 010 139 130 140
JPY -010 -010 -010 010 010 010 Foreign exchange
Spot 3M 12M Spot rates are closing prices as of 1622021 Forecast date 1122021 These
EURUSD 121 124 125 forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC USDCHF 089 087 088
EURCHF 108 108 110
USDJPY 10594 10200 10000
Equities EURGBP 087 087 086
GBPUSD 139 143 145 Index Spot PE Div y 3M 12M () AUDUSD 078 078 079
MSCI AC World 1679 202 22 1690 1790 USDCAD 126 123 120
US SampP 500 3933 234 21 3950 4150 EURSEK 1004 1010 1020
Eurostoxx 50 3726 181 26 3700 3850 EURNOK 1016 1020 1020
UK FTSE 100 6749 143 43 6700 7000 EURPLN 449 457 459
Japan Topix 1965 185 21 1940 1970 USDCNY 646 635 625
Australia SampPASX 6917 207 38 6900 7150 USDSGD 132 131 128
200 USDKRW 109898 106000 101000
Switzerland SMI 10908 186 28 10950 11400 USDINR 7264 7270 7200
MSCI Emerging Mar- 190621 166 22 194000 207000 USDBRL 538 525 530 kets USDMXN 1994 2050 2150
Prices as of 1622021 Forecast as on 1122021 Gross return (incl dividends) Spot rates are as of 1722021 These forecasts are no reliable indicators of future performance Source Bloomberg These forecasts are no reliable indicators of future performance Source Bloomberg Datastream Credit SuisseIDC Credit SuisseIDC
Commodities Real GDP growth and inflation Spot 3M 12M GDP Inflation
Gold (USDoz) 1793 1900 2000 growth
Silver (USDoz) 273 27 30 in 2020 2021 2022 2020 2021 2022
Platinum (USDoz) 12624 1300 1250 CH -32 35 20 -07 03 02
Palladium (USDoz) 2390 2400 2500 EMU -72 50 42 03 06 10
Copper (USDton) 8416 8300 7900 USA -35 57 35 12 20 21
WTI Crude Oil (USDbbl) 600 60 60 UK -100 53 75 09 14 18
Bloomberg Commodity index 1815 181 186 Australia -20 35 32 08 15 15
Japan -49 17 19 -02 01 03
Spot rates are as of 1722021 forecast as on 1122021 China 23 71 52 25 11 17 These forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC Last forecast update 10022021
These forecasts are no reliable indicators of future performance Source Bloomberg Credit Suisse
(17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 18
Glossary
Risk warnings
Emerging markets Emerging markets are located in countries that possess one or more of the following characteristics a certain degree of political instability relatively unpredictable financial markets and economic growth patterns a financial market that is still at the development stage or a weak economy Emerging market investments usually result in higher risks as a result of political economic credit exchange rate market liquidity legal settlement market shareholder and creditor risks
Hedge funds Regardless of structure hedge funds are not limited to any particular investment discipline or trading strategy and seek to profit in all kinds of markets by using leverage derivative instruments and speculative investment strategies that may increase the risk of investment loss
Commodity investments Commodity transactions carry a high degree of risk and may not be suitable for many private investors The extent of loss due to market movements can be substantial or even result in a total loss
Real estate Investors in real estate are exposed to liquidity foreign currency and other risks including cyclical risk rental and local market risk as well as environmental risk and changes to the legal situation
Currency risks Investments in foreign currencies involve the additional risk that the foreign currency might lose value against the investorrsquos reference currency
Equity risk Equities are subject to market forces and hence fluctuations in value which are not entirely predictable
Market risk Financial markets rise and fall based on economic conditions inflationary pressures world news and business-specific reports While trends may be detected over time it can be difficult to predict the direction of the market and individual stocks This variability puts stock investments at risk of losing value
High Yield bond risk High Yield Bonds are typically rated below investment grade or are unrated and as such are often subject to a higher risk of issuer default
Perpetual Bond risk Perpetual Bonds have no maturity date and therefore the Interest pay-out depends on the viability of the issuer in the very long term
Subordinated Bond risk In case of liquidation of the issuer investors can only get back the principal after other senior creditors are paid
Risk of Bonds with variable deferral of interest terms Investors would face uncertainty over the amount and time of the interest payments to be received
Callable bond risk Investors face reinvestment risk when the issuer exercises its right to redeem the bond before it matures
Risk of Bonds with extendable maturity date Investors would not have a definite schedule of principal repayment
Convertible or exchangeable bond risk Investors are subject to both equity and bond investment risk
Cocos risk The bond may be written-off fully or partially or converted to common stock on the occurrence of a trigger event
Explanation of indices frequently used in reports
Index Comment
Australia SampPASX 200 SampPASX 200 is an Australian market-capitalization-weighted and float-adjusted stock index calculated by Standard and Poors
BC High Yield Corp USD The US Corporate High Yield Index measures USD-denominated non-investment grade fixed-rate and taxable corporate bonds The index is calculated by Barclays
BC High Yield Pan EUR The Euro Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate EUR The US Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate USD The IG Corporate Index tracks the fixed-rate investment-grade dollar-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
Canada SampPTSX comp The SampPTSX composite index is the Canadian equivalent of the SampP 500 Index in the USA The index contains the largest stocks traded on the Toronto Stock Exchange
Consumer Confidence Indices Consumer Confidence Indices (CCIs) are based on surveys of consumers spending intentions and economic situations as well as their concerns and expectations for the immediate future
CS Hedge Fund Index The Credit Suisse Hedge Fund Index is compiled by Credit Suisse Hedge Index LLC It is an asset-weighted hedge fund index and includes only funds as opposed to separate accounts The index reflects performance net of all hedge fund component performance fees and expenses
CS LSI ex govt CHF The Liquid Swiss Index ex govt CHF is a market-capitalized bond index representing the most liquid and tradable portion of the Swiss bond market excluding Swiss government bonds The index is calculated by Credit Suisse
DAX The German Stock Index stock represents 30 of the largest and most liquid German companies that trade on the Frankfurt Exchange
DXY A measure of the value of the US dollar relative to the majority of its most important trading partners The US Dollar Index is similar to other trade-weighted indices which also use the exchange rates from the same major currencies
Eurostoxx 50 Eurostoxx 50 is a market-capitalization-weighted stock index of 50 leading blue-chip companies in the Eurozone
FTSE EPRANAREIT Global Real Estate Index Series The FTSE EPRANAREIT Global Real Estate Index Series is designed to represent general trends in eligible real estate equities worldwide
Hedge Fund Barometer The Hedge Fund Barometer is a proprietary Credit Suisse scoring tool that measures market conditions for hedge fund strategies It comprises four components liquidity volatility systemic risks and business cycle
Japan Topix TOPIX also known as the Tokyo Stock Price Index tracks all large Japanese companies listed in the stock exchanges first section The index calculation excludes temporary issues and preferred stocks
JPM EM hard curr USD The Emerging Market Bond Index Plus tracks the total return of hard-currency sovereign bonds across the most liquid emerging markets The index encompasses US-denominated Brady bonds (dollar-denominated bonds issued by Latin American countries) loans and Eurobonds
JPM EM local curr hedg USD The JPMorgan Government Bond Index tracks local currency bonds issued by emerging market governments across the most accessible markets for international investors
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 19
MSCI AC AsiaPacific The MSCI All Country Asia Pacific Index captures large and mid cap representation across 5 developed market countries and 8 emerging markets countries in the Asia Pacific region With 1000 constituents the index covers approximately 85 of the free float-adjusted market capitalization in each country
MSCI AC World The MSCI All Country World Index captures large and mid cap representation across 23 developed markets and 23 emerging market countries With roughly 2480 constituents the index covers around 85 of the global investable equity opportunity set
MSCI Emerging Markets MSCI Emerging Markets is a free-float-weighted Index designed to measure equity market performance in global emerging markets The index is developed and calculated by Morgan Stanley Capital International
MSCI EMU The MSCI EMU Index (European Economic and Monetary Union) captures large and mid cap representation across the 10 Developed Markets countries in the EMU With 237 constituents the index covers approximately 85 of the free float-adjusted market capitalization of the EMU
MSCI Europe The MSCI Europe Index captures large and mid cap representation across 15 developed markets countries in Europe With 442 constituents the index covers approximately 85 of the free float-adjusted market capitalization across the European developed markets equity universe
MSCI UK The MSCI United Kingdom Index is designed to measure the performance of the large and mid cap segments of the UK market With 111 constituents the index covers approximately 85 of the free float-adjusted market capitalization in the UK
MSCI World MSCI World is an index of global equity markets developed and calculated by Morgan Stanley Capital International Calculations are based on closing prices with dividends reinvested
OECD Composite Leading Indicators OECD Composite Leading Indicators (CLIs) are designed to provide early signals of turning points in business cycles with components that measure early stages of production respond to changes in economic activity and are sensitive to expectations of future activity
Purchasing Managers Indices Purchasing Managers Indices (PMIs) are economic indicators derived from monthly surveys of private-sector companies The two principal producers of PMIs are Markit Group which conducts PMIs for over 30 countries worldwide and the Institute for Supply Management (ISM) which conducts PMIs for the United States The indices include additional sub-indices for manufac-turing surveys such as new orders employment exports stocks of raw materials and finished goods prices of inputs and finished goods and services
Russell 1000 Growth Index The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe based on 1000 large-cap companies with higher price-to-book ratios and higher forecast growth values
Russell 1000 Index The Russell 1000 Index is a stock market index that represents the highest-ranking 1000 stocks in the Russell 3000 Index (encompassing the 3000 largest US-traded stocks with the underlying companies all incorporated in the USA) and representing about 90 of the total market capitalization of that index The Russell 1000 Index has a weighted average market capitalization of USD 81 billion and the median market capitalization is approximately USD 46 billion
Russell 1000 Value Index The Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe based on 1000 large-cap companies with lower price-to-book ratios and lower expected growth values
Switzerland SMI The Swiss Market Index is made up of 20 of the largest companies listed of the Swiss Performance Index universe It represents 85 of the free-float capitalization of the Swiss equity market As a price index the SMI is not adjusted for dividends
UK FTSE 100 FTSE 100 is a market-capitalization-weighted stock index that represents 100 of the most highly capitalized companies traded on the London Stock exchange The equities have an investibility weighting in the index calculation
US SampP 500 Standard and Poors 500 is a capitalization-weighted stock index representing all major industries in the USA which measures the performance of the domestic economy through changes in the aggregate market value
Abbreviations frequently used in reports
Abb Description Abb Description
3612 MMA 3612 month moving average IMF International Monetary Fund
AI Alternative investments LatAm Latin America
APAC Asia Pacific Libor London interbank offered rate
bbl barrel m bd Million barrels per day
BI Bank Indonesia M1 A measure of the money supply that includes all physical money such as coins and currency as well as demand deposits checking accounts and negotiable order of withdrawal accounts
BoC Bank of Canada M2 A measure of money supply that includes cash and checking deposits (M1) as well as savings deposits money market mutual funds and other time deposits
BoE Bank of England M3 A measure of money supply that includes M2 as well as large time deposits institutional money market funds short-term re-purchase agreements and other larger liquid assets
BoJ Bank of Japan MampA Mergers and acquisitions
bp Basis points MAS Monetary Authority of Singapore
BRIC Brazil Russia China India MLP Master Limited Partnership
CAGR Compound annual growth rate MoM Month-on-month
CBOE Chicago Board Options Exchange MPC Monetary Policy Committee
CFO Cash from operations OAS Option-adjusted spread
CFROI Cash flow return on investment OECD Organisation for Economic Co-operation and Development
DCF Discounted cash flow OIS Overnight indexed swap
DM Developed Market OPEC Organization of Petroleum Exporting Countries
DMs Developed Markets PB Price-to-book value
EBITDA Earnings before interest taxes depreciation and amortization PE Price-earnings ratio
ECB European Central Bank PBoC Peoples Bank of China
EEMEA Eastern Europe Middle East and Africa PEG PE ratio divided by growth in EPS
EM Emerging Market PMI Purchasing Managers Index
EMEA Europe Middle East and Africa PPP Purchasing power parity
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 20
EMs Emerging Markets QE Quantitative easing
EMU European Monetary Union QoQ Quarter-on-quarter
EPS Earnings per share rhs right-hand side (for charts)
ETF Exchange traded funds RBA Reserve Bank of Australia
EV Enterprise value RBI Reserve Bank of India
FCF Free cash flow RBNZ Reserve Bank of New Zealand
Fed US Federal Reserve REIT Real estate investment trust
FFO Funds from operations ROE Return on equity
FOMC Federal Open Market Committee ROIC Return on invested capital
FX Foreign exchange RRR Reserve requirement ratio
G10 Group of Ten SAA Strategic asset allocation
G3 Group of Three SDR Special drawing rights
GDP Gross domestic product SNB Swiss National Bank
GPIF Government Pension Investment Fund TAA Tactical asset allocation
HC Hard currency TWI Trade-Weighted Index
HY High yield VIX Volatility Index
IBD Interest-bearing debt WTI West Texas Intermediate
IC Credit Suisse Investment Committee YoY Year-on-year
IG Investment grade YTD Year-to-date
ILB Inflation-linked bond Personal Consumption An indicator of the average increase in prices for all domestic Expenditure (PCE defla- personal consumption tor)
Currency codes frequently used in reports
Code Currency Code Currency
ARS Argentine peso KRW South Korean won
AUD Australian dollar MXN Mexican peso
BRL Brazilian real MYR Malaysian ringgit
CAD Canadian dollar NOK Norwegian krone
CHF Swiss franc NZD New Zealand dollar
CLP Chilean peso PEN Peruvian nuevo sol
CNY Chinese yuan PHP Philippine peso
COP Colombian peso PLN Polish złoty
CZK Czech koruna RUB Russian ruble
EUR Euro SEK Swedish kronakronor
GBP Pound sterling SGD Singapore dollar
HKD Hong Kong dollar THB Thai baht
HUF Hungarian forint TRY Turkish lira
IDR Indonesian rupiah TWD New Taiwan dollar
ILS Israeli new shekel USD United States dollar
INR Indian rupee ZAR South African rand
JPY Japanese yen
Important information on derivatives
Pricing Option premiums and prices mentioned are indicative only Option premiums and prices can be subject to very rapid changes The prices and premiums mentioned are as of the time indicated in the text and might have changed substantially in the meantime
Risks Derivatives are complex instruments and are intended for sale only to investors who are capable of understanding and assuming all the risks involved Investors must be aware that adding option positions to an existing portfolio may change the characteristics and behavior of that portfolio substantially A portfoliorsquos sensitivity to certain market moves can be heavily impacted by the leverage effect of options
Buying calls Investors who buy call options risk the loss of the entire premium paid if the underlying security trades below the strike price at expiration
Buying puts Investors who buy put options risk loss of the entire premium paid if the underlying security finishes above the strike price at expiration
Selling calls Investors who sell calls commit themselves to sell the underlying for the strike price even if the market price of the underlying is substantially higher Investors who sell covered calls (own the underlying security and sell a call) risk limiting their upside to the strike price plus the upfront premium received and may have their security called away if the security price exceeds the strike price of the short call Additionally the investor has full downside participation that is only partially offset by the premium received upfront If investors are forced to sell the underlying they might be subject to taxing Investors shorting naked calls (ie selling calls but without holding the underlying security) risk unlimited losses of security price less strike price
Selling puts Put sellers commit to buying the underlying security at the strike price in the event the security falls below the strike price The maximum loss is the full strike price less the premium received for selling the put
Buying call spreads Investors who buy call spreads (buy a call and sell a call with a higher strike) risk the loss of the entire premium paid if the underlying trades below the lower strike price at expiration The maximum gain from buying call spreads is the difference between the strike prices less the upfront premium paid
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 21
Selling naked call spreads Selling naked call spreads (sell a call and buy a farther out-of-the-money call with no underlying security position) Investors risk a maximum loss of the difference between the long call strike and the short call strike less the upfront premium taken in if the underlying security finishes above the long call strike at expiration The maximum gain is the upfront premium taken in if the security finishes below the short call strike at expiration
Buying put spreads Investors who buy put spreads (buy a put and sell a put with a lower strike price) also have a maximum loss of the upfront premium paid The maximum gain from buying put spreads is the difference between the strike prices less the upfront premium paid
Buying strangles Buying strangles (buy put and buy call) The maximum loss is the entire premium paid for both options if the underlying trades between the put strike and the call strike at expiration
Selling strangles or straddles Investors who are long a security and short a strangle or straddle risk capping their upside in the security to the strike price of the call that is sold plus the upfront premium received Additionally if the security trades below the strike price of the short put investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short put and will also experience losses in the security position if they owns shares The maximum potential loss is the full value of the strike price (less the value of the premium received) plus losses on the long security position Investors who are short naked strangles or straddles have unlimited potential loss since if the security trades above the call strike price investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short call In addition they are obligated to buy the security at the put strike price (less upfront premium received) if the security fin-ishes below the put strike price at expiration
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 22
Important information on mutual funds Fees and charges etc Different types of fees and commissions (subscription fee amount which must be retained in trust assets repurchase fee etc) are charged when investment trustsfunds are purchased and sold In addition apart from these fees and commissions trust and management fees and other fees (audit fee trust administrative charges carried interest etc) are charged and borne by you through your trust asset Fees and commissions borne by you will be a sum of these amounts Such fees and commissions vary depending on the investment trustfund and depending on the investment status and therefore we cannot provide specific amounts or calculation methods
For detailed information on fees and commissions etc of each re-spective investment trustfund please refer to the pre-contract documents (prospectus and other supplementary documents)
Important information on dividends bull Dividends are different to interest on deposits and are paid from the net asset value of investment trustsfunds Therefore when dividends are paid the base value (net asset value per unit) will decrease by an amount equivalent to the amount paid
bull Dividends may be paid exceeding the profit earned during the calculation period (trading profit including profits of dividends etc after expenses) In this case the base value (net asset value per unit) on the settlement date in this period will decrease compared to that on the settlement date in the previous period Also the level of dividends does not always reflect the rate of return for the investment trustfund during the calculation period
bull A part or all of dividends may be virtually equivalent to some repayment of the principal depending on the purchase price of the investment trustfund by an investor The same can be applied to a case that an increase in the base value (net asset value per unit) is smaller than a dividend amount due to the investment status after purchase of the investment trustfund
Please refer to the prospectus for details
Explanation of major risks (description pursuant to Ar-ticle 37 (Regulation on Advertising etc) of the Financial Instruments and Exchange Act etc) The risks described below are a summary of some general risks of investment trustsfunds (risks which have an impact on net asset value) and do not cover all risks Please refer to the pre-trade documents (prospectus and other supplementary documents)
Price volatility risk Investment trustsfunds invest mainly in equities bonds and derivative products etc The value of the investment trustfund will go up or down due to increases or decreases in the prices of such investments Further the value of such investments will be impacted by political and economic factors the financial standing of an issuer market demand and supply interest rates and other factors
Foreign currency risk Investment trustsfunds which invest in equities or bonds etc denominated in foreign currencies entail a foreign currency risk and the base value (or net asset value) of investment trustsfunds may change depending on the currency exchange rate Even when you do not experience a loss of invest-ment principal when calculated in the base currency you may suffer a loss at conversion into Japanese yen due to fluctuations in exchange rates Fur-thermore investment trustsfunds which utilize currency trading among multiple currencies may incur costs due to such currency trading depending on the difference in short-term interest rates between the currencies and you may suffer a loss
Credit risk For investment trustsfunds which invest in equities or bonds etc the prices of these investments may increase and decrease due to changes in the business or financial standing of the issuer and other factors and you may suffer a loss
Risk pertaining to liquidity Where there is sudden high volume in a particular investment or when sudden changes in the external environment surrounding markets triggers a sudden downturn in a market or period of market turmoil etc investments may not be flexibly traded In such a case a decline in the price of the investment may impact the base value (or net asset value) of the investment trust result-ing in a loss Further the management company may decide to stop calcu-lation of net asset prices or suspend sell or redemption claims
In addition for certain types of investment trustfund there is a risk that particular investments may be designated to a separate account (or side pocket) due to a lack of liquidity When a separate account is utilized by in-vestment trustsfunds restrictions may apply as to when such investments can be liquidated through a sell or redemption claim and there may be a re-striction in the timing or form of redemption claim permissible In particular for Fund of Fund investments when an investment trustfund makes an in-vestment without time limit in another fund the investment trustfund may be influenced by investment results in the other funds
Risk associated with an outflow of money received from sales orders When there is a large volume of sale orders in a short period of time the investment trustfund may be forced to sell structured securities at a lower rate than the prevailing market price to refund monies to investors and as a result you may suffer a loss Also alternative investment trustsfunds gen-erally have a limitation in selling or cashing out the investment compared to traditional investment trustsfunds Many alternative investment trustsfunds only accept a sell or redemption order on a monthly or quarterly basis and therefore you may not be able to rapidly exit the investment in for example times of economic uncertainty
Redemption risk Investment trustsfunds may become subject to mandatory redemption due to a certain reason For details please refer to the pre-trade documents (prospectus and other supplementary documents) before subscription
Concentration risk Investment trustsfunds which invest in a certain investment product or similar investment product group may significantly decrease in value (net asset value) under severe market circumstances
Country risk When changes in political economic and social conditions in investment destination countries and regions cause a dislocation in financial and security markets security prices may significantly change Also investments in emerging markets involve unique risks including small market size and trade volume political and social uncertainties undeveloped market infrastructure such as a clearing system undeveloped information disclosure system and legal system by supervising authorities large fluctuations in exchange rates restrictions on currency remittance to foreign countries and other factors and therefore may have larger price fluctuations compared to investments in major developed markets
Important information on non-Japanese stocks Please refer to the issuer information when you purchase non-Japanese stocks
Disclaimer This material is published solely for information purposes and is intended for the recipientrsquos sole use Credit Suisse does not represent or warrant its ac-curacy or completeness The material is not directly or indirectly intended for any investment solicitation and does not constitute an invitation or offer to conclude a transaction contract for financial instruments etc Credit Suisse accepts no liability for loss arising from the use of the information in this material It is recommended that you consult with the third party professional advisors as to legal or tax issues etc This material should not be reproduced or quoted without the prior express written consent of Credit Suisse The information and opinions expressed in this material were produced by Private Banking Division at Credit Suisse as of the date of writing and are subject to change without notice Views expressed in respect of particular investment products in this material may be different from or inconsistent with the ob-
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 23
servations and views of other divisions besides Private Banking due to the differences in evaluation criteria This material is solely distributed in Japan by Credit Suisse Securities (Japan) Limited Credit Suisse Securities (Japan) Limited will not distribute or forward it outside Japan
You may incur a loss as a result of fluctuations in stock prices if you invest in stocks In relation to foreign stocks you may incur a loss in such stocks due to foreign exchange rate fluctuations etc The market value of bonds is affected by interest rate fluctuations or changes in the financial standing of any issuer etc as such you may incur a loss if you sell such bonds before they are redeemed In relation to foreign bonds you may incur a loss in such bonds due to foreign exchange rate fluctuations etc The net asset value of mutual funds can fall as well as rise due to price changes of underlying stocks bonds etc and foreign exchange rate fluctuations and this may cause you to incur a loss
Structured securities and derivatives are complex instruments 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 of any structured security or transaction may be affected by changes in financial market conditions reference indices volatility and the credit quality of any issuer or reference issuer
Furthermore there are structured securities on which you may incur a loss since the redemption amounts are linked with fluctuations in reference indices etc There are also derivatives on which potential losses may exceed the amount of the initial investment Commission rates for any transactions will be as per the rates agreed between Credit Suisse and you For transactions conducted on a principal to principal basis between Credit Suisse and you the purchase or sale price will be the total consideration Transactions con-
ducted on a principal to principal basis including over the counter derivatives transactions will be quoted as a purchasebid price or selloffer price and for which a difference or spread may exist Charges in relation to transactions will be agreed prior to dealing as per our requirements under the Financial Instruments and Exchange Law
By purchasing financial instruments etc you may incur a loss or a loss in excess of the principal as a result of fluctuations in market prices or other financial indices etc Please read carefully the Pre-Contract Documentation provided for an explanation of associated risks and commissions etc of individual financial instruments etc prior to purchase Please contact your Relationship Manager if you have any questions
UNITED STATES NEITHER THIS REPORT NOR ANY COPY THEREOF MAY BE SENT TAKEN INTO OR DISTRIBUTED IN THE UNITED STATES OR TO ANY US PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE US SECURITIES ACT OF 1933 AS AMENDED)
Credit Suisse Securities (Japan) Limited Financial Instruments Dealer Di-rector-General of Kanto Local Finance Bureau (Kinsho) No 66 a member of Japan Securities Dealers Association Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association
Copyright copy 2021 Credit Suisse Group AG andor its affiliates All rights reserved
21C013A_IS_J
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 24
Imprint
Publisher Credit Suisse Private Banking amp Wealth Management Investment Solutions amp Products
Information about other Investment Solutions amp Products publications Internet httpsinvestmentcredit-suissecom
Intranet (for employees only) httpsisrcsintranet
Subscription (clients) Please contact your customer advisor to subscribe to this publication
Subscription (internal) For information on subscriptions please visit httpisrcsintranetsubscriptions
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 25
Supertrends
Supertrends Investmentsolutions In this installment we focus on the ldquoClimate changerdquo Supetrend and suggest investment solutions from sectors that can contribute significantly to reducing greenhouse gas emissions as well as mitigating long-term impacts of global warming
Maki Shimizu Investment Strategist - Japan Strategy
Policy tailwinds The ldquoClimate changerdquo theme is strongly influenced by policy factors hence we expect the recent change of government in the USA to lead to renewed interest in environmental policy issues On his first day in office last month US President Joe Biden announced his countryrsquos return to the Paris Agreement ndash an international framework for combating global warming ndash and began to shift policy course from the previous adminis-tration On environmental issues it may be difficult to reverse the international communityrsquos distrust and skepticism of the USA brought about by the ldquoAmerica Firstrdquo approach of the past four years However shifting to renewable energy sources is one of the major policy targets of President Biden and international cooperation on this issue will likely be gen-uinely welcomed
Currently countries that have ratified the Paris Agreement are struggling to meet their targets for reducing emissions by 2050 As policy support increases business opportunities related to environmental policy are likely to expand at the private sector level Here we focus on sectors that fall under this Supertrend because of their ability to contribute signifi-cantly to reducing greenhouse gas emissions and mitigating long-term impacts of global warming
Investment solution features A common catchphrase for all four sub-themes associated with this Supertrend is ldquosustainable energy supplyrdquo With the Paris Agreementrsquos goal of ldquocarbon neutralityrdquo in mind we look for investment opportunities arising out of a structural transformation in the energy sector via carbon-free electricity sustainable transportation pioneering oil and gas energy conversion and agriculture and food sub-themes We high-light climate change-related companies that primarily develop renewable energy and provide energy storage technologies
Besides companies that are likely to see continued growth via the long-term shift in energy policy we highlight others that are likely to reform the agriculture sector by incorporating automation in their production processes Additionally we highlight related entries from our environmental social and
governance (ESG) related stock list (ESG Top 25) that were discussed in the recent Supetrends report In mutual funds in addition to the Global Security Fund we offer solutions that enable investment in areas related to rising climate change awareness from an ESG perspective
(17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 7
Supertrends
Theme Detail Recommended solution
Anxious societies ndash Inclusive capitalism
AM One Global Security Stock Fund CS Beneficiaries of Anxious Societies Selection
Affordability Basis goods such as housing healthcare and pension have become unaffordable for many people
Employment Skilling reskilling and upskilling are crucial steps as technical progress radically changes required skill set
Personal security Everyday challenges such as the pandemic outbreak or cybersecurity are the most important pain points for people
Infrastructure ndash Closing the Global Core Infrastructure Stock gap Fund CS Infrastructure List
Transport Developed markets have to invest in project replacements while emerging markets continue to spend on growth
Energy amp water Energy transition toward renewables to limit global carbon emission Middle East faces an acute water shortage
Smart cities As 68 of the worldrsquos population will live in urban areas by 2050 cities must become smarter to handle this strong growth
Telecom infrastructure As 5G will be the next major investment cycle for the mobile industry mobile traffic may grow almost five-fold
Technology at the service of AM One Global Security Stock humans Fund CS Technology Selection
Digitalization The number of connected devices is surging and thus edge computing is expected to gain traction in order to capture even more value from data
Virtual reality Growing to the size of todayrsquos smartphone market in the years ahead
Artificial intelligence (AI) Material growth potential for home industries and cities digitalization and healthtech and fintech markets
Industry 40 Robots and automation are entering various non-industry sectors demand for industry robots is rising
Healthtech Digitalization solution biotechnology and AI in product development and healthcare research Silver economy ndash Investing for Select Sector SPDR ETFs (Health-population aging care Consumer Staples Consumer
Discretionary) CS Silver Economy Stocks
Therapeutics amp devices Biopharma and medical device companies to innovate around senior conditions such as heart disease amp cancer
Care amp facilities Managed care organizations hospitals and dedicated facilities to face increasing demand
Health amp life insurance Private pension gap in emerging markets and growing importance of private pension fund amp insurance solutions
Senior consumer choices High spending power of seniors to benefit consumer companies with senior-centric offerings Millennials values AM One Global Security Fund CS
Millennials Favorites
Sustainable business and invest- ESG overlay across the entire millennials stock universe to underpin the importance of sustainability ments
Digital natives Being connected 247 having a strong preference for technology brands driving an education technology revolution
Fun health amp leisure A new way of living and spending with substantial growth potential in emerging markets Climate change AM One Global Security Fund CS
Climate Change Choice ESG Top 25 promotion list
Carbon-free electricity CO2-neutral electricity production and the replacement of coal-fired electricity as a key component of CO2 reduction
Oil amp gas transition pioneers Demand for fossil fuel remains high for now while the transition pioneers will be leading the sector
Sustainable transport Sustainable fuels a switch to electric vehicles more efficient engines and railroads will reduce greenhouse gas (GHG) emissions
Agriculture amp food A growing population and a high CO2 emission from the agriculture sector require efficiency gains
Source Credit Suisse
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 8
Economics
Positive growth outlook beyondwinter soft patch After a likely soft patch in the winter months we expect very strong growth this year
The main risk to our near-term forecast is new virus strains that may necessitate further shutdowns
James P Sweeney Chief Economist and Regional CIO Americas
Peter James Foley Economist
Global growth rebounded strongly in the second half of 2020 We expect a winter soft patch most noticeable in Europe as viral contagion leads to mobility restrictions that hamper service sector activity Beyond that the growth outlook is very positive
Global demand has recently been propped up by developed market households Real retail sales in developed economies have exceeded pre-pandemic levels since September and are now above the long-term trend Business investment has risen too but not as much as consumption The onus is on business investment to drive the recovery further
A dominant feature of the pandemic economy has been the contrast between goods demand which has recovered sharply and services demand which has suffered due to social distancing The divergence is likely to unwind this year as spending that was redirected to goods in 2020 returns to services in 2021 Services consumption in developed market economies is about twice as large as goods consumption and is likely to increase strongly this year as vaccine rollouts support an expansion of activity
In that sense consumer spending on services might substitute some goods spending But at the same time a resurgent service sector may give further tailwinds to the goods sector through business spending
Uncertainties about variants vaccines and stimulus COVID-19 infections are falling in Europe and the USA But new highly contagious strains risk new or extended shut-downs which are the main downside risk to our near-term forecast
Vaccine rollout has not been smooth but the USA and UK will likely vaccinate a sufficient share of their populations by this summer that a strong services recovery is likely Europe and other major economies lag behind which may mean longer restrictions on activity Normalization appears to be out of reach before Q3 in large economies but vaccinations will support increased mobility
The USA is likely to pass another pandemic stimulus bill soon It will likely cost at least half the USD 19 tn price tag of the original plan but even this reduced size will substantially affect the US growth outlook Direct checks to households will im-mediately boost consumer spending and increase household savings further
There is less uncertainty over Eurozone policy support but it may not be forceful enough Europersquos fiscal policy so far has focused on mitigation rather than stimulation But this means that as the economy recovers fiscal support will fade meaning limited upside to growth The European Central Bank has stated it can ease policy further but it is unclear whether this will boost lending in the real economy
Last yearrsquos contraction in the Eurozone was larger than in the USA But the rebound is likely to be weaker We expect Eu-rozone GDP to grow 50 in 2021 while US GDP should grow 57 (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 9
Global investment strategy
Retain preference for EM equities Continued fiscal and monetary policy support and an easing of the pandemic should help Western economies see strong growth in the second half of the year
We retain a cyclical tilt in portfolio allocations through overweight positions in equities with a preference for EM equities and commodities
Philipp Lisibach Chief Global Strategist
The Credit Suisse Investment Committee (IC) has reduced emerging market hard currency (EM HC) sovereign bonds to strategic allocations and changed the return outlook for devel-oped market investment grade (IG) bonds from attractive to neutral Equity allocations are kept at overweight with a continued preference for emerging markets The BCOM also remains at overweight
Reflation expected to support cyclical assets Even though the pandemic continues to weigh on economic activity falling infection rates and hospitalizations alongside vaccine rollouts should allow economies to reopen In combi-nation with continued fiscal and monetary policy support Western economies are likely to see exceptionally strong growth in the second half of 2021 The USA is currently benefiting from a second relief package which is likely to be followed by a third one soon adding fuel to the expected concerted recovery
As such the IC keeps a cyclical bias in portfolio allocations expressed by overweights in equities and the broad commod-ity index (BCOM) In equities we continue to express a pref-erence for emerging markets specifically Chinese equities which show strong price momentum having outperformed global equities since the start of the year Although China has initiated policy-tightening measures we think it will take these steps in a controlled manner without risking denting market sentiment
Risk of inflation scare mitigated by central bank com-mitments Besides the risk that new virus strains with potential resistance to vaccines may fuel market concerns markets could start consolidating in coming months should a rise in US inflation
due to base effects lead to an inflation scare Although we think that such an inflation increase will be temporary uncer-tainty about the outlook for the second half is elevated due to the expected strong growth and likely supply-side bottle-necks as economies reopen To mitigate this risk the contin-ued commitment by central banks above all the US Federal Reserve (Fed) to keep financial conditions easy will be key Recent comments by Fed Chair Powell stressing patience and suggesting that the economy is far from overheating give us confidence that this key market support will stay in place For real assets such as equities and commodities this should continue to prove beneficial
Tight credit spreads Although the anchoring of treasury yields for shorter maturities via central banksrsquo rate guidance should prevent a sudden surge in longer-dated yields we expect them to grind higher as growth momentum builds Thus performance is expected to continue to suffer and the IC is keeping government bonds at underweight Due to tight IG credit spreads the IC has reduced the return outlook for IG from attractive to neutral For EM HC sovereign bonds we take profit on our successful overweight and cut portfolio allocations back to strategic levels as spreads have eroded Investors should find more value in EM HC corporate as well as selected EM local sovereign bonds Despite some USD consolidation at the start of this year the USD is likely to continue its weakening trend against other major currencies in coming months
Watch a video featuring the highlights of the Credit Suisse investment strategy wwwcredit-suissecomciofilm
(15022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 10
Special topic
ESG Integrated Investing according to environmental social and governance (ESG) criteria is in the process of becoming mainstream
Combining the House View with ESG convictions ldquoESG Integratedrdquo is a set of best ideas for investors to gradually transition to multi-asset portfolios that perform solidly both on traditional financial performance metrics and on ESG metrics ldquoESG Integratedrdquo is part of our Signature Convictions
Nannette Hechler-Faydherbe Chief Investment Officer ndash International Wealth Management
Jessie Gisiger Head of Credit Strategy and Investment Themes
Green transitions are at the heart of the fiscal spending and recovery plans put in place in response to the COVID-19 pandemic Against this backdrop strong regulatory momen-tum and fiscal ambitions in the USA Europe and China have only added to a global trend toward integrating ESG criteria at every level of economic activity
There is growing evidence that adhering to ESG criteria not only helps to mitigate our impact on climate change but also supports financial risk-reward for several reasons First be-sides increasing transparency and awareness ESG filters help keep in check the risk of heightened regulatory scrutiny that non-ESG-compliant business practices increasingly face Second ESG factors can impact financial business conditions such as the incurred cost of capital Focusing on good gover-nance and keeping an eye on regulatory risk are equally likely to be beneficial when considering default risk in the corporate bond market Third there are strong investment themes emerging from the policy support currently developing espe-cially in climate change to achieve net-zero carbon emissions by 2050
Signature Convictions ESG Integrated Combining key elements of the Credit Suisse House View with thematic priorities in ESG investing that emerge from these catalysts we have developed a set of best ideas (see table) that can help investors gradually transition their invest-ments toward multi-asset portfolios that perform solidly on both traditional financial performance metrics as well as ESG metrics
In fixed income ESG emerging market corporate bonds and ESG subordinated bonds offer investors an avenue to earn a yield pick-up but at a lower risk of credit spread widening than the broader index Empirical assessments have also shown that companies with higher ESG scores tend to have a lower probability of default Investors looking for an equiva-lent to money-market instruments may consider impact invest-ments which deliver low single-digit returns with limited vola-tility
In equities we highlight the Supertrends climate change and sustainable infrastructure as two key ESG-related themes that are focused on decarbonizing economic activity and are catalyzed by global regulatory momentum For investors looking for single-stock investments our Credit Suisse ESG Top 25 list includes stocks from our high conviction list that are in category 3 (ldquoESG awarerdquo) or category 4 (ldquoThematicrdquo) of our Credit Suisse ESG classification framework
Investors who would like to invest according to our preference for EM equities also have the option of doing so in an ESG-compliant manner through the MSCI Emerging Markets ESG Leaders Index That index has on average outperformed the MSCI Emerging Markets Index since 2008 This outperfor-mance can be explained by the MSCI Emerging Markets ESG Leaders Indexrsquos higher exposure to growth sectors and strong orientation to new economy sectors that benefit from powerful structural growth drivers Separately green real estate is likely to lead to higher occupancy rates and a lower probabil-ity of income loss resulting in a more stable income stream
For investors looking to alternative investments for further diversification impact private equity sustainable alpha hedge fund and carbon emission allowance futures are also interest-ing
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 11
Signature Convictions ESG Integrated
Source Credit Suisse
(16022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 12
Special topic
Bullish hopes in Chinarsquos Year ofthe Ox Our positive view on equities remains in place We express it through a preference for emerging market particularly Chinese equities
After strong gains so far this year we challenge the quality and longevity of Chinarsquos bull market and explain why we remain optimistic
John William Huia Woods CIO APAC
Just ahead of Chinese New Year Chinarsquos benchmark Shanghai Composite Index surged to new highs for the year Chinarsquos strong market gains are fueled by a rush of excess liquidity the likes of which we have not seen since 2015 But experienced investors will know that a rising tide can just as easily ndash and quickly ndash turn into an ebbing tide particularly when fundamentals become unsupportive
Red flags In fact red flags are not hard to find Possibly the most im-portant observation is that Chinarsquos growth momentum has passed its peak and will likely decelerate into 2021 A decel-erating economy does not necessarily hurt a bull market but it does not necessarily help it either
Equally important is the view that Chinarsquos ndash increasingly less dovish ndash authorities are unlikely to further stimulate the economy It has been widely observed that they remain vigilant and concerned toward the possible formation of price bubbles in real and financial assets including equity markets
Indeed the Peoplersquos Bank of Chinarsquos willingness in late January 2021 to withdraw rather than add CNY 570 bn of liquidity from interbank markets ahead of the Chinese New Year suggests that a clear inflection point has been reached with monetary policy now normalizing after two years of stimulus and easy money
Amid decelerating economic growth corporate revenues are under pressure meaning analyst earnings revisions are flat-lining and thus failing to keep pace with more vibrant emerging andor developing markets In absolute terms weaker earn-ings exert upward pressure on valuations Yet a liquidity-driven rally can still push valuations higher
Imbalance The liquidity-centric imbalance at the heart of Chinarsquos bull market leaves it exposed and vulnerable to correction in our opinion An environment of tightening monetary policy decel-erating growth and stretched valuations are generally not conducive to sustained price appreciation In fact in Chinarsquos case incrementally greater inflows of liquidity will be required to sustain existing price levels At least from an onshore per-spective the music will stop
Intriguingly attention is now turning to foreign investor inflows which hitherto have been muted But there are reasons why a rebound in sentiment might be expected including improving geopolitical sentiment with the new administration in the USA and expectation of CNY appreciation which should boost returns for USD investors Overall a reacceleration in flows could be a key factor in keeping Chinese markets supported
Sound diversification is key On balance at least for the next few months we remain overweight Chinese equities in a portfolio context Our funda-mental concerns are medium-term in nature while near-term risks ndash supported by liquidity ndash are tilted toward further price gains In line with our House View we emphasize the value of well-diversified exposure to EM equities overall
(15022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 13
Fixed income
EM HC corporate bonds preferred The ongoing reflationary path is going to support long-dated yields warranting a con-tinued cautious stance on government bonds
We reduce our allocation to EM HC sovereign bonds to benchmark weight We no longer see IG credit as attractive and prefer EM HC corporate bonds
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
Global benchmark yields have continued to trend higher in the last few weeks supported by reflationary expectations Despite the marketsrsquo repricing of more US fiscal stimulus the Federal Reserve (Fed) kept control of front-end rates expectations with the US yield curve further steepening as a result Going forward long-dated inflation expectations are still expected to be the main driver of nominal benchmark yields Both should moderately rise in tandem particularly in the USA With other developed regions following the same reflationary theme albeit with a lag we anticipate that global government bonds will remain an unattractive investment We therefore keep exposure below benchmark allocations in portfolios Furthermore we keep a relatively short duration stance in US Eurozone and Swiss bond markets and prefer US inflation-linked bonds over comparable nominal govern-ment bonds
IG credit no longer attractive prefer EM HC corporate bonds We no longer think that global investment grade (IG) credit offers attractive return potential While monetary policy re-mains supportive IG spreads are already at historical lows and no longer offer enough compensation against the further rise in benchmark yields we expect Global high yield (HY) credit market returns should remain attractive thanks to policy support and the economic recovery we project However we
see limited further spread compression potential in US HY and European HY from the current historical lows We believe emerging market hard currency (EM HC) corporate bonds are most attractive within credit with pro-cyclical emerging markets benefiting from the global growth rebound expected this year At the same time and due to their comparatively low benchmark duration EM HC corporate bonds are less sensitive to higher US government yields than global IG EM HC corporates on average provide similar credit fundamentals to developed market credit but offer more attractive spreads amid the current reflationary environment Also we see more opportunities in EM HC HY corporates particularly in Asia where spreads offer a premium of around 200 bp over US HY
EM HC sovereigns reduced to benchmark allocation EM HC sovereign bond valuations are currently tight with spreads not far off the lows reached after the great financial crisis Inflation has largely bottomed out due to base effects food and energy prices and there is limited scope for further monetary stimulus EM HC sovereign bond spreads have a high correlation with US Treasury yields With the latter still on the rise risks to EM HC sovereign bonds are increasing Positioning is at record highs and flows continue to acceler-ate This suggests that a further strong performance is less likely Given these considerations we have decided to reduce EM HC sovereign bonds to benchmark allocation in our portfolios (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 14
Equities
Remain constructive on globalequities We maintain our attractive return outlook for global equities with a preference for emerging markets UK Germany financials materials and health care
After a double-digit earnings decline in 2020 global earnings are set to recover sharply this year
Marc Haumlfliger Global Equity Strategist
We maintain our attractive return outlook for global equities on the back of supportive monetary conditions vaccine roll-outs growing stimulus prospects and our constructive outlook for economic and earnings growth While traditional valuation metrics remain elevated they look less stretched relative to other asset classes such as global treasury bonds The earnings recovery is key to our thesis of attractive returns for global equities as we do not expect further re-ratings (ie higher multiples) to drive equity markets going forward So far the Q4 earnings results underpin our view that companies have learned how to deal with the current circumstances given earnings results are mostly surpassing projections As a result of this strong showing global EPS growth rates (YoY) will likely be positive again for the Q4 2020 earnings season After an overall double-digit earnings decline in 2020 global earnings are set to recover sharply this year ndash particularly in cyclical market segments Risks to our constructive view on equities come from COVID-19 concerns (mutation potential vaccine disappointments) disappointing fiscal stimulus or earlier-than-expected comments about a withdrawal of mon-etary stimulus
In a portfolio context we keep our overweight in emerging market (EM) equities as we remain bearish on the USD ex-pect higher commodity prices and see the re-opening environ-ment as positive for EM equities We expect cyclical segments that lagged the broader equity benchmark in 2020 ndash such as the UK Germany and financials ndash to catch up amid the im-proved economic outlook and rising inflation expectations
Latest view changes In developed market equities we turn neutral from outperform on Hong Kong equities as a result of their strong performance in recent weeks and increasing macro headwinds In EM eq-uities we now expect South African equities to outperform driven by attractive valuation a strong earnings picture and an accommodative central bank We no longer expect Indian equities to underperform and turn neutral following the gov-ernmentrsquos pro-growth budget announcement an improved macroeconomic outlook and earnings estimates being revised higher at a faster pace than peers
Earnings expected to recover in 2021
Last data point 09022020 Historical performance indications and financial market
scenarios are not reliable indicators of current or future performance Source Factset
Estimates Credit Suisse
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 15
Alternative investments
Still positive on commodities Commodity performance has been strong year-to-date A near-term pause is possible but we retain a positive view and prefer diversified exposure with a cyclical bias
Despite recent resilience we expect listed real estate to lag equities In hedge funds we highlight opportunistic long-short discretionary and EM macro managers as well as private credit
Jelena Kucenko Head of Alternative Investments
Stefan Graber Head of Commodity Strategy
Hedge funds Be selective Hedge funds were flat in January as short covering activity at month-end erased initial gains Fundamental long-short and macro funds suffered the most while relative value and event driven were more resilient Our Trading Conditions Barometer is in favorable territory Combined with regional and sector divergences arising from vaccine rollouts compli-ance with environmental social and governance criteria and record levels of capital-market activity this creates opportuni-ties for long-short managers We also highlight private credit strategies with a focus on consumer loans and mid-market companies which should benefit from resilient household fi-nances and a post-pandemic recovery Discretionary and emerging market (EM) macro managers are preferred in case of market setbacks
Commodities Providing cyclicality and inflation hedge Commodities started 2021 on a strong note focusing on positive growth expectations instead of near-term COVID-19 concerns A near-term pause is possible as the latest gains came ahead of an anticipated reacceleration in industrial ac-tivity That said improved bottom-up fundamentals have flipped aggregate curves into backwardation translating into positive roll yields which may attract additional investor inter-est Commodities also provide a hedge should inflation sur-prise to the upside We retain our positive view on the asset class and favor diversified exposure with a cyclical tilt (oil energy) For oil the March OPEC+ meeting is the next event
risk and a potential source of volatility as the group will likely discuss supply hikes We still think that gold offers diversifica-tion and some upside but the bull run could be maturing as yield curves have started to steepen We thus tone down our optimism on the metal
Real estate Expected to underperform equities Listed real estate slightly outperformed global equities in January thanks to strong earnings results in logistics and a rebound in oversold retail companies as short sellers covered their positions But we believe that further upside potential for the sector is limited as the impact of lockdowns is not yet reflected in landlordsrsquo share prices in our view Additionally valuations in structurally resilient sectors such as logistics and data centers already reflect fundamentals This and the prospect of higher long-term yields and an increased risk of US regulatory headwinds reinforce our negative sector view
Private equity Backdrop still positive Robust investment activity at the end of last year pushed pri-vate equity deal values higher but the asset class still offers better priced opportunities than public markets Dry powder ndash committed but uninvested capital ndash is at a record of over USD 2 trn with subdued fundraising activity expected to re-bound as investors increase commitments in 2021 according to data provider Preqin The expected economic rebound is supportive for the asset class but rising long-term interest rates pose risk to financing costs We highlight strategies offering high growth with limited leverage (venture capital growth capital) and secondary funds which can exploit market opportunities tactically generating excess returns over time
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 16
Foreign exchange
Keep favoring cyclical currencies We maintain a short USD bias and prefer commodity and cyclical currencies such as the EUR GBP or SEK
Within our positive emerging market stance we particularly like the CNY KRW BRL and RUB
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
The USD was broadly flat against other major currencies over the last month Investorsrsquo focus on US fiscal stimulus and an expected rise in US inflation allowed for some normalization in previously large USD short positions While the repricing of near-term growth expectations also in light of a more rapid US vaccination campaign created temporary USD resilience we think this improvement is likely partly reflected in the USD already We maintain that as the Federal Reserve (Fed) keeps short-term rates close to zero for longer there is little room for sustained gains in the USD Moreover US fiscal stimulus will not only deteriorate fiscal balances but also deepen the current account deficit This will also benefit the global econ-omy through improved global trade and sentiment which should weigh on the USD Uncertainties relating to new COVID-19 variants and extended USD short positioning re-main a risk in the short term
Constructive on cyclical currencies A slow start to vaccine rollouts and renewed political risks in Italy somewhat dented sentiment toward the EUR in early February Even so the single currency remained stable vs the USD The Eurozone is facing a delayed recovery but this is consensus already and likely temporary in nature With political risks now subsiding the EU recovery fund operational in the next quarter and the global growth recovery benefitting the export-oriented Eurozone we think EURUSD can gain some further ground and target 124 in 3M Elsewhere in Europe we also remain positive on the SEK and the GBP
vs the USD With global reflation set to continue and com-modity prices likely to remain supported through the ongoing rebalancing we still favor commodity currencies in particular the NZD CAD and NOK
BRL RUB CNY and KRW preferred Emerging market (EM) currencies were broadly range-bound on an index level over the last month but with significant re-turn dispersion across currencies The main arguments sup-porting our attractive view on EM FX remain in place We continue to see further scope for a broad appreciation of EM FX versus the USD Even though the EM economic recovery has peaked economic activity still looks solid relative to de-veloped markets External positions remain in good shape and non-resident flows are still supportive In addition with inflation bottoming and food prices increasing scope for dovish EM central bank surprises seems to be exhausted This should be favorable for EM carry versus the USD
The RUB BRL CNY and KRW remain our preferred curren-cies in EM Both the RUB and BRL are cheaply valued Addi-tionally the RUB should profit from attractive risk-adjusted carry and the BRL from more hawkish central bank expecta-tions In Asia we remain positive on the CNY and KRW and neutral on the other Asian FX We lower our 3M USDCNY target to 635 but keep our 12M target at 625 Our USDKRW targets remain unchanged at 1060 and 1010 in 3M and 12M respectively We retain a mild downward bias on the other USDAsia pairs expecting broad USD weak-ness (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 17
Forecasts
At a glance More information on the forecasts and estimates is available Credit Selected indices on request Past performance is not an indicator of future
Yield Spread Duration 3M TR 12M TR fore-performance Performance can be affected by commissions () (bp) (years) forecast cast fees or other charges as well as exchange rate fluctuations BC Global Aggregate 091 33 731 -010 010
BC Global Treasuries 058 9 862 -030 -050
BC Global IG Corp 141 94 735 033 130 Central bank rate10-year government bonds BC Global HY Corp 429 378 416 062 247
CB rate 10Y JPM EMBI Global Di- 480 344 764 032 126 yield versified HC
in Spot 3M 12M Spot 3M 12M
CHF -075 -075 -075 -026 -030 -030 BC = Barclays Capital IG= Investment Grade JPM = JP Morgan (EMBI+) Index data as of 1522021 Forecast as on 1522021
EUR -050 -050 -050 -035 -030 -030 These forecasts are no reliable indicators of future performance Source Bloomberg
USD 013 000-025 000-025 130 140 150 Credit Suisse GBP 010 010 010 062 050 060
AUD 010 010 010 139 130 140
JPY -010 -010 -010 010 010 010 Foreign exchange
Spot 3M 12M Spot rates are closing prices as of 1622021 Forecast date 1122021 These
EURUSD 121 124 125 forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC USDCHF 089 087 088
EURCHF 108 108 110
USDJPY 10594 10200 10000
Equities EURGBP 087 087 086
GBPUSD 139 143 145 Index Spot PE Div y 3M 12M () AUDUSD 078 078 079
MSCI AC World 1679 202 22 1690 1790 USDCAD 126 123 120
US SampP 500 3933 234 21 3950 4150 EURSEK 1004 1010 1020
Eurostoxx 50 3726 181 26 3700 3850 EURNOK 1016 1020 1020
UK FTSE 100 6749 143 43 6700 7000 EURPLN 449 457 459
Japan Topix 1965 185 21 1940 1970 USDCNY 646 635 625
Australia SampPASX 6917 207 38 6900 7150 USDSGD 132 131 128
200 USDKRW 109898 106000 101000
Switzerland SMI 10908 186 28 10950 11400 USDINR 7264 7270 7200
MSCI Emerging Mar- 190621 166 22 194000 207000 USDBRL 538 525 530 kets USDMXN 1994 2050 2150
Prices as of 1622021 Forecast as on 1122021 Gross return (incl dividends) Spot rates are as of 1722021 These forecasts are no reliable indicators of future performance Source Bloomberg These forecasts are no reliable indicators of future performance Source Bloomberg Datastream Credit SuisseIDC Credit SuisseIDC
Commodities Real GDP growth and inflation Spot 3M 12M GDP Inflation
Gold (USDoz) 1793 1900 2000 growth
Silver (USDoz) 273 27 30 in 2020 2021 2022 2020 2021 2022
Platinum (USDoz) 12624 1300 1250 CH -32 35 20 -07 03 02
Palladium (USDoz) 2390 2400 2500 EMU -72 50 42 03 06 10
Copper (USDton) 8416 8300 7900 USA -35 57 35 12 20 21
WTI Crude Oil (USDbbl) 600 60 60 UK -100 53 75 09 14 18
Bloomberg Commodity index 1815 181 186 Australia -20 35 32 08 15 15
Japan -49 17 19 -02 01 03
Spot rates are as of 1722021 forecast as on 1122021 China 23 71 52 25 11 17 These forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC Last forecast update 10022021
These forecasts are no reliable indicators of future performance Source Bloomberg Credit Suisse
(17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 18
Glossary
Risk warnings
Emerging markets Emerging markets are located in countries that possess one or more of the following characteristics a certain degree of political instability relatively unpredictable financial markets and economic growth patterns a financial market that is still at the development stage or a weak economy Emerging market investments usually result in higher risks as a result of political economic credit exchange rate market liquidity legal settlement market shareholder and creditor risks
Hedge funds Regardless of structure hedge funds are not limited to any particular investment discipline or trading strategy and seek to profit in all kinds of markets by using leverage derivative instruments and speculative investment strategies that may increase the risk of investment loss
Commodity investments Commodity transactions carry a high degree of risk and may not be suitable for many private investors The extent of loss due to market movements can be substantial or even result in a total loss
Real estate Investors in real estate are exposed to liquidity foreign currency and other risks including cyclical risk rental and local market risk as well as environmental risk and changes to the legal situation
Currency risks Investments in foreign currencies involve the additional risk that the foreign currency might lose value against the investorrsquos reference currency
Equity risk Equities are subject to market forces and hence fluctuations in value which are not entirely predictable
Market risk Financial markets rise and fall based on economic conditions inflationary pressures world news and business-specific reports While trends may be detected over time it can be difficult to predict the direction of the market and individual stocks This variability puts stock investments at risk of losing value
High Yield bond risk High Yield Bonds are typically rated below investment grade or are unrated and as such are often subject to a higher risk of issuer default
Perpetual Bond risk Perpetual Bonds have no maturity date and therefore the Interest pay-out depends on the viability of the issuer in the very long term
Subordinated Bond risk In case of liquidation of the issuer investors can only get back the principal after other senior creditors are paid
Risk of Bonds with variable deferral of interest terms Investors would face uncertainty over the amount and time of the interest payments to be received
Callable bond risk Investors face reinvestment risk when the issuer exercises its right to redeem the bond before it matures
Risk of Bonds with extendable maturity date Investors would not have a definite schedule of principal repayment
Convertible or exchangeable bond risk Investors are subject to both equity and bond investment risk
Cocos risk The bond may be written-off fully or partially or converted to common stock on the occurrence of a trigger event
Explanation of indices frequently used in reports
Index Comment
Australia SampPASX 200 SampPASX 200 is an Australian market-capitalization-weighted and float-adjusted stock index calculated by Standard and Poors
BC High Yield Corp USD The US Corporate High Yield Index measures USD-denominated non-investment grade fixed-rate and taxable corporate bonds The index is calculated by Barclays
BC High Yield Pan EUR The Euro Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate EUR The US Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate USD The IG Corporate Index tracks the fixed-rate investment-grade dollar-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
Canada SampPTSX comp The SampPTSX composite index is the Canadian equivalent of the SampP 500 Index in the USA The index contains the largest stocks traded on the Toronto Stock Exchange
Consumer Confidence Indices Consumer Confidence Indices (CCIs) are based on surveys of consumers spending intentions and economic situations as well as their concerns and expectations for the immediate future
CS Hedge Fund Index The Credit Suisse Hedge Fund Index is compiled by Credit Suisse Hedge Index LLC It is an asset-weighted hedge fund index and includes only funds as opposed to separate accounts The index reflects performance net of all hedge fund component performance fees and expenses
CS LSI ex govt CHF The Liquid Swiss Index ex govt CHF is a market-capitalized bond index representing the most liquid and tradable portion of the Swiss bond market excluding Swiss government bonds The index is calculated by Credit Suisse
DAX The German Stock Index stock represents 30 of the largest and most liquid German companies that trade on the Frankfurt Exchange
DXY A measure of the value of the US dollar relative to the majority of its most important trading partners The US Dollar Index is similar to other trade-weighted indices which also use the exchange rates from the same major currencies
Eurostoxx 50 Eurostoxx 50 is a market-capitalization-weighted stock index of 50 leading blue-chip companies in the Eurozone
FTSE EPRANAREIT Global Real Estate Index Series The FTSE EPRANAREIT Global Real Estate Index Series is designed to represent general trends in eligible real estate equities worldwide
Hedge Fund Barometer The Hedge Fund Barometer is a proprietary Credit Suisse scoring tool that measures market conditions for hedge fund strategies It comprises four components liquidity volatility systemic risks and business cycle
Japan Topix TOPIX also known as the Tokyo Stock Price Index tracks all large Japanese companies listed in the stock exchanges first section The index calculation excludes temporary issues and preferred stocks
JPM EM hard curr USD The Emerging Market Bond Index Plus tracks the total return of hard-currency sovereign bonds across the most liquid emerging markets The index encompasses US-denominated Brady bonds (dollar-denominated bonds issued by Latin American countries) loans and Eurobonds
JPM EM local curr hedg USD The JPMorgan Government Bond Index tracks local currency bonds issued by emerging market governments across the most accessible markets for international investors
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 19
MSCI AC AsiaPacific The MSCI All Country Asia Pacific Index captures large and mid cap representation across 5 developed market countries and 8 emerging markets countries in the Asia Pacific region With 1000 constituents the index covers approximately 85 of the free float-adjusted market capitalization in each country
MSCI AC World The MSCI All Country World Index captures large and mid cap representation across 23 developed markets and 23 emerging market countries With roughly 2480 constituents the index covers around 85 of the global investable equity opportunity set
MSCI Emerging Markets MSCI Emerging Markets is a free-float-weighted Index designed to measure equity market performance in global emerging markets The index is developed and calculated by Morgan Stanley Capital International
MSCI EMU The MSCI EMU Index (European Economic and Monetary Union) captures large and mid cap representation across the 10 Developed Markets countries in the EMU With 237 constituents the index covers approximately 85 of the free float-adjusted market capitalization of the EMU
MSCI Europe The MSCI Europe Index captures large and mid cap representation across 15 developed markets countries in Europe With 442 constituents the index covers approximately 85 of the free float-adjusted market capitalization across the European developed markets equity universe
MSCI UK The MSCI United Kingdom Index is designed to measure the performance of the large and mid cap segments of the UK market With 111 constituents the index covers approximately 85 of the free float-adjusted market capitalization in the UK
MSCI World MSCI World is an index of global equity markets developed and calculated by Morgan Stanley Capital International Calculations are based on closing prices with dividends reinvested
OECD Composite Leading Indicators OECD Composite Leading Indicators (CLIs) are designed to provide early signals of turning points in business cycles with components that measure early stages of production respond to changes in economic activity and are sensitive to expectations of future activity
Purchasing Managers Indices Purchasing Managers Indices (PMIs) are economic indicators derived from monthly surveys of private-sector companies The two principal producers of PMIs are Markit Group which conducts PMIs for over 30 countries worldwide and the Institute for Supply Management (ISM) which conducts PMIs for the United States The indices include additional sub-indices for manufac-turing surveys such as new orders employment exports stocks of raw materials and finished goods prices of inputs and finished goods and services
Russell 1000 Growth Index The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe based on 1000 large-cap companies with higher price-to-book ratios and higher forecast growth values
Russell 1000 Index The Russell 1000 Index is a stock market index that represents the highest-ranking 1000 stocks in the Russell 3000 Index (encompassing the 3000 largest US-traded stocks with the underlying companies all incorporated in the USA) and representing about 90 of the total market capitalization of that index The Russell 1000 Index has a weighted average market capitalization of USD 81 billion and the median market capitalization is approximately USD 46 billion
Russell 1000 Value Index The Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe based on 1000 large-cap companies with lower price-to-book ratios and lower expected growth values
Switzerland SMI The Swiss Market Index is made up of 20 of the largest companies listed of the Swiss Performance Index universe It represents 85 of the free-float capitalization of the Swiss equity market As a price index the SMI is not adjusted for dividends
UK FTSE 100 FTSE 100 is a market-capitalization-weighted stock index that represents 100 of the most highly capitalized companies traded on the London Stock exchange The equities have an investibility weighting in the index calculation
US SampP 500 Standard and Poors 500 is a capitalization-weighted stock index representing all major industries in the USA which measures the performance of the domestic economy through changes in the aggregate market value
Abbreviations frequently used in reports
Abb Description Abb Description
3612 MMA 3612 month moving average IMF International Monetary Fund
AI Alternative investments LatAm Latin America
APAC Asia Pacific Libor London interbank offered rate
bbl barrel m bd Million barrels per day
BI Bank Indonesia M1 A measure of the money supply that includes all physical money such as coins and currency as well as demand deposits checking accounts and negotiable order of withdrawal accounts
BoC Bank of Canada M2 A measure of money supply that includes cash and checking deposits (M1) as well as savings deposits money market mutual funds and other time deposits
BoE Bank of England M3 A measure of money supply that includes M2 as well as large time deposits institutional money market funds short-term re-purchase agreements and other larger liquid assets
BoJ Bank of Japan MampA Mergers and acquisitions
bp Basis points MAS Monetary Authority of Singapore
BRIC Brazil Russia China India MLP Master Limited Partnership
CAGR Compound annual growth rate MoM Month-on-month
CBOE Chicago Board Options Exchange MPC Monetary Policy Committee
CFO Cash from operations OAS Option-adjusted spread
CFROI Cash flow return on investment OECD Organisation for Economic Co-operation and Development
DCF Discounted cash flow OIS Overnight indexed swap
DM Developed Market OPEC Organization of Petroleum Exporting Countries
DMs Developed Markets PB Price-to-book value
EBITDA Earnings before interest taxes depreciation and amortization PE Price-earnings ratio
ECB European Central Bank PBoC Peoples Bank of China
EEMEA Eastern Europe Middle East and Africa PEG PE ratio divided by growth in EPS
EM Emerging Market PMI Purchasing Managers Index
EMEA Europe Middle East and Africa PPP Purchasing power parity
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 20
EMs Emerging Markets QE Quantitative easing
EMU European Monetary Union QoQ Quarter-on-quarter
EPS Earnings per share rhs right-hand side (for charts)
ETF Exchange traded funds RBA Reserve Bank of Australia
EV Enterprise value RBI Reserve Bank of India
FCF Free cash flow RBNZ Reserve Bank of New Zealand
Fed US Federal Reserve REIT Real estate investment trust
FFO Funds from operations ROE Return on equity
FOMC Federal Open Market Committee ROIC Return on invested capital
FX Foreign exchange RRR Reserve requirement ratio
G10 Group of Ten SAA Strategic asset allocation
G3 Group of Three SDR Special drawing rights
GDP Gross domestic product SNB Swiss National Bank
GPIF Government Pension Investment Fund TAA Tactical asset allocation
HC Hard currency TWI Trade-Weighted Index
HY High yield VIX Volatility Index
IBD Interest-bearing debt WTI West Texas Intermediate
IC Credit Suisse Investment Committee YoY Year-on-year
IG Investment grade YTD Year-to-date
ILB Inflation-linked bond Personal Consumption An indicator of the average increase in prices for all domestic Expenditure (PCE defla- personal consumption tor)
Currency codes frequently used in reports
Code Currency Code Currency
ARS Argentine peso KRW South Korean won
AUD Australian dollar MXN Mexican peso
BRL Brazilian real MYR Malaysian ringgit
CAD Canadian dollar NOK Norwegian krone
CHF Swiss franc NZD New Zealand dollar
CLP Chilean peso PEN Peruvian nuevo sol
CNY Chinese yuan PHP Philippine peso
COP Colombian peso PLN Polish złoty
CZK Czech koruna RUB Russian ruble
EUR Euro SEK Swedish kronakronor
GBP Pound sterling SGD Singapore dollar
HKD Hong Kong dollar THB Thai baht
HUF Hungarian forint TRY Turkish lira
IDR Indonesian rupiah TWD New Taiwan dollar
ILS Israeli new shekel USD United States dollar
INR Indian rupee ZAR South African rand
JPY Japanese yen
Important information on derivatives
Pricing Option premiums and prices mentioned are indicative only Option premiums and prices can be subject to very rapid changes The prices and premiums mentioned are as of the time indicated in the text and might have changed substantially in the meantime
Risks Derivatives are complex instruments and are intended for sale only to investors who are capable of understanding and assuming all the risks involved Investors must be aware that adding option positions to an existing portfolio may change the characteristics and behavior of that portfolio substantially A portfoliorsquos sensitivity to certain market moves can be heavily impacted by the leverage effect of options
Buying calls Investors who buy call options risk the loss of the entire premium paid if the underlying security trades below the strike price at expiration
Buying puts Investors who buy put options risk loss of the entire premium paid if the underlying security finishes above the strike price at expiration
Selling calls Investors who sell calls commit themselves to sell the underlying for the strike price even if the market price of the underlying is substantially higher Investors who sell covered calls (own the underlying security and sell a call) risk limiting their upside to the strike price plus the upfront premium received and may have their security called away if the security price exceeds the strike price of the short call Additionally the investor has full downside participation that is only partially offset by the premium received upfront If investors are forced to sell the underlying they might be subject to taxing Investors shorting naked calls (ie selling calls but without holding the underlying security) risk unlimited losses of security price less strike price
Selling puts Put sellers commit to buying the underlying security at the strike price in the event the security falls below the strike price The maximum loss is the full strike price less the premium received for selling the put
Buying call spreads Investors who buy call spreads (buy a call and sell a call with a higher strike) risk the loss of the entire premium paid if the underlying trades below the lower strike price at expiration The maximum gain from buying call spreads is the difference between the strike prices less the upfront premium paid
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 21
Selling naked call spreads Selling naked call spreads (sell a call and buy a farther out-of-the-money call with no underlying security position) Investors risk a maximum loss of the difference between the long call strike and the short call strike less the upfront premium taken in if the underlying security finishes above the long call strike at expiration The maximum gain is the upfront premium taken in if the security finishes below the short call strike at expiration
Buying put spreads Investors who buy put spreads (buy a put and sell a put with a lower strike price) also have a maximum loss of the upfront premium paid The maximum gain from buying put spreads is the difference between the strike prices less the upfront premium paid
Buying strangles Buying strangles (buy put and buy call) The maximum loss is the entire premium paid for both options if the underlying trades between the put strike and the call strike at expiration
Selling strangles or straddles Investors who are long a security and short a strangle or straddle risk capping their upside in the security to the strike price of the call that is sold plus the upfront premium received Additionally if the security trades below the strike price of the short put investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short put and will also experience losses in the security position if they owns shares The maximum potential loss is the full value of the strike price (less the value of the premium received) plus losses on the long security position Investors who are short naked strangles or straddles have unlimited potential loss since if the security trades above the call strike price investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short call In addition they are obligated to buy the security at the put strike price (less upfront premium received) if the security fin-ishes below the put strike price at expiration
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 22
Important information on mutual funds Fees and charges etc Different types of fees and commissions (subscription fee amount which must be retained in trust assets repurchase fee etc) are charged when investment trustsfunds are purchased and sold In addition apart from these fees and commissions trust and management fees and other fees (audit fee trust administrative charges carried interest etc) are charged and borne by you through your trust asset Fees and commissions borne by you will be a sum of these amounts Such fees and commissions vary depending on the investment trustfund and depending on the investment status and therefore we cannot provide specific amounts or calculation methods
For detailed information on fees and commissions etc of each re-spective investment trustfund please refer to the pre-contract documents (prospectus and other supplementary documents)
Important information on dividends bull Dividends are different to interest on deposits and are paid from the net asset value of investment trustsfunds Therefore when dividends are paid the base value (net asset value per unit) will decrease by an amount equivalent to the amount paid
bull Dividends may be paid exceeding the profit earned during the calculation period (trading profit including profits of dividends etc after expenses) In this case the base value (net asset value per unit) on the settlement date in this period will decrease compared to that on the settlement date in the previous period Also the level of dividends does not always reflect the rate of return for the investment trustfund during the calculation period
bull A part or all of dividends may be virtually equivalent to some repayment of the principal depending on the purchase price of the investment trustfund by an investor The same can be applied to a case that an increase in the base value (net asset value per unit) is smaller than a dividend amount due to the investment status after purchase of the investment trustfund
Please refer to the prospectus for details
Explanation of major risks (description pursuant to Ar-ticle 37 (Regulation on Advertising etc) of the Financial Instruments and Exchange Act etc) The risks described below are a summary of some general risks of investment trustsfunds (risks which have an impact on net asset value) and do not cover all risks Please refer to the pre-trade documents (prospectus and other supplementary documents)
Price volatility risk Investment trustsfunds invest mainly in equities bonds and derivative products etc The value of the investment trustfund will go up or down due to increases or decreases in the prices of such investments Further the value of such investments will be impacted by political and economic factors the financial standing of an issuer market demand and supply interest rates and other factors
Foreign currency risk Investment trustsfunds which invest in equities or bonds etc denominated in foreign currencies entail a foreign currency risk and the base value (or net asset value) of investment trustsfunds may change depending on the currency exchange rate Even when you do not experience a loss of invest-ment principal when calculated in the base currency you may suffer a loss at conversion into Japanese yen due to fluctuations in exchange rates Fur-thermore investment trustsfunds which utilize currency trading among multiple currencies may incur costs due to such currency trading depending on the difference in short-term interest rates between the currencies and you may suffer a loss
Credit risk For investment trustsfunds which invest in equities or bonds etc the prices of these investments may increase and decrease due to changes in the business or financial standing of the issuer and other factors and you may suffer a loss
Risk pertaining to liquidity Where there is sudden high volume in a particular investment or when sudden changes in the external environment surrounding markets triggers a sudden downturn in a market or period of market turmoil etc investments may not be flexibly traded In such a case a decline in the price of the investment may impact the base value (or net asset value) of the investment trust result-ing in a loss Further the management company may decide to stop calcu-lation of net asset prices or suspend sell or redemption claims
In addition for certain types of investment trustfund there is a risk that particular investments may be designated to a separate account (or side pocket) due to a lack of liquidity When a separate account is utilized by in-vestment trustsfunds restrictions may apply as to when such investments can be liquidated through a sell or redemption claim and there may be a re-striction in the timing or form of redemption claim permissible In particular for Fund of Fund investments when an investment trustfund makes an in-vestment without time limit in another fund the investment trustfund may be influenced by investment results in the other funds
Risk associated with an outflow of money received from sales orders When there is a large volume of sale orders in a short period of time the investment trustfund may be forced to sell structured securities at a lower rate than the prevailing market price to refund monies to investors and as a result you may suffer a loss Also alternative investment trustsfunds gen-erally have a limitation in selling or cashing out the investment compared to traditional investment trustsfunds Many alternative investment trustsfunds only accept a sell or redemption order on a monthly or quarterly basis and therefore you may not be able to rapidly exit the investment in for example times of economic uncertainty
Redemption risk Investment trustsfunds may become subject to mandatory redemption due to a certain reason For details please refer to the pre-trade documents (prospectus and other supplementary documents) before subscription
Concentration risk Investment trustsfunds which invest in a certain investment product or similar investment product group may significantly decrease in value (net asset value) under severe market circumstances
Country risk When changes in political economic and social conditions in investment destination countries and regions cause a dislocation in financial and security markets security prices may significantly change Also investments in emerging markets involve unique risks including small market size and trade volume political and social uncertainties undeveloped market infrastructure such as a clearing system undeveloped information disclosure system and legal system by supervising authorities large fluctuations in exchange rates restrictions on currency remittance to foreign countries and other factors and therefore may have larger price fluctuations compared to investments in major developed markets
Important information on non-Japanese stocks Please refer to the issuer information when you purchase non-Japanese stocks
Disclaimer This material is published solely for information purposes and is intended for the recipientrsquos sole use Credit Suisse does not represent or warrant its ac-curacy or completeness The material is not directly or indirectly intended for any investment solicitation and does not constitute an invitation or offer to conclude a transaction contract for financial instruments etc Credit Suisse accepts no liability for loss arising from the use of the information in this material It is recommended that you consult with the third party professional advisors as to legal or tax issues etc This material should not be reproduced or quoted without the prior express written consent of Credit Suisse The information and opinions expressed in this material were produced by Private Banking Division at Credit Suisse as of the date of writing and are subject to change without notice Views expressed in respect of particular investment products in this material may be different from or inconsistent with the ob-
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 23
servations and views of other divisions besides Private Banking due to the differences in evaluation criteria This material is solely distributed in Japan by Credit Suisse Securities (Japan) Limited Credit Suisse Securities (Japan) Limited will not distribute or forward it outside Japan
You may incur a loss as a result of fluctuations in stock prices if you invest in stocks In relation to foreign stocks you may incur a loss in such stocks due to foreign exchange rate fluctuations etc The market value of bonds is affected by interest rate fluctuations or changes in the financial standing of any issuer etc as such you may incur a loss if you sell such bonds before they are redeemed In relation to foreign bonds you may incur a loss in such bonds due to foreign exchange rate fluctuations etc The net asset value of mutual funds can fall as well as rise due to price changes of underlying stocks bonds etc and foreign exchange rate fluctuations and this may cause you to incur a loss
Structured securities and derivatives are complex instruments 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 of any structured security or transaction may be affected by changes in financial market conditions reference indices volatility and the credit quality of any issuer or reference issuer
Furthermore there are structured securities on which you may incur a loss since the redemption amounts are linked with fluctuations in reference indices etc There are also derivatives on which potential losses may exceed the amount of the initial investment Commission rates for any transactions will be as per the rates agreed between Credit Suisse and you For transactions conducted on a principal to principal basis between Credit Suisse and you the purchase or sale price will be the total consideration Transactions con-
ducted on a principal to principal basis including over the counter derivatives transactions will be quoted as a purchasebid price or selloffer price and for which a difference or spread may exist Charges in relation to transactions will be agreed prior to dealing as per our requirements under the Financial Instruments and Exchange Law
By purchasing financial instruments etc you may incur a loss or a loss in excess of the principal as a result of fluctuations in market prices or other financial indices etc Please read carefully the Pre-Contract Documentation provided for an explanation of associated risks and commissions etc of individual financial instruments etc prior to purchase Please contact your Relationship Manager if you have any questions
UNITED STATES NEITHER THIS REPORT NOR ANY COPY THEREOF MAY BE SENT TAKEN INTO OR DISTRIBUTED IN THE UNITED STATES OR TO ANY US PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE US SECURITIES ACT OF 1933 AS AMENDED)
Credit Suisse Securities (Japan) Limited Financial Instruments Dealer Di-rector-General of Kanto Local Finance Bureau (Kinsho) No 66 a member of Japan Securities Dealers Association Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association
Copyright copy 2021 Credit Suisse Group AG andor its affiliates All rights reserved
21C013A_IS_J
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 24
Imprint
Publisher Credit Suisse Private Banking amp Wealth Management Investment Solutions amp Products
Information about other Investment Solutions amp Products publications Internet httpsinvestmentcredit-suissecom
Intranet (for employees only) httpsisrcsintranet
Subscription (clients) Please contact your customer advisor to subscribe to this publication
Subscription (internal) For information on subscriptions please visit httpisrcsintranetsubscriptions
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 25
Supertrends
Theme Detail Recommended solution
Anxious societies ndash Inclusive capitalism
AM One Global Security Stock Fund CS Beneficiaries of Anxious Societies Selection
Affordability Basis goods such as housing healthcare and pension have become unaffordable for many people
Employment Skilling reskilling and upskilling are crucial steps as technical progress radically changes required skill set
Personal security Everyday challenges such as the pandemic outbreak or cybersecurity are the most important pain points for people
Infrastructure ndash Closing the Global Core Infrastructure Stock gap Fund CS Infrastructure List
Transport Developed markets have to invest in project replacements while emerging markets continue to spend on growth
Energy amp water Energy transition toward renewables to limit global carbon emission Middle East faces an acute water shortage
Smart cities As 68 of the worldrsquos population will live in urban areas by 2050 cities must become smarter to handle this strong growth
Telecom infrastructure As 5G will be the next major investment cycle for the mobile industry mobile traffic may grow almost five-fold
Technology at the service of AM One Global Security Stock humans Fund CS Technology Selection
Digitalization The number of connected devices is surging and thus edge computing is expected to gain traction in order to capture even more value from data
Virtual reality Growing to the size of todayrsquos smartphone market in the years ahead
Artificial intelligence (AI) Material growth potential for home industries and cities digitalization and healthtech and fintech markets
Industry 40 Robots and automation are entering various non-industry sectors demand for industry robots is rising
Healthtech Digitalization solution biotechnology and AI in product development and healthcare research Silver economy ndash Investing for Select Sector SPDR ETFs (Health-population aging care Consumer Staples Consumer
Discretionary) CS Silver Economy Stocks
Therapeutics amp devices Biopharma and medical device companies to innovate around senior conditions such as heart disease amp cancer
Care amp facilities Managed care organizations hospitals and dedicated facilities to face increasing demand
Health amp life insurance Private pension gap in emerging markets and growing importance of private pension fund amp insurance solutions
Senior consumer choices High spending power of seniors to benefit consumer companies with senior-centric offerings Millennials values AM One Global Security Fund CS
Millennials Favorites
Sustainable business and invest- ESG overlay across the entire millennials stock universe to underpin the importance of sustainability ments
Digital natives Being connected 247 having a strong preference for technology brands driving an education technology revolution
Fun health amp leisure A new way of living and spending with substantial growth potential in emerging markets Climate change AM One Global Security Fund CS
Climate Change Choice ESG Top 25 promotion list
Carbon-free electricity CO2-neutral electricity production and the replacement of coal-fired electricity as a key component of CO2 reduction
Oil amp gas transition pioneers Demand for fossil fuel remains high for now while the transition pioneers will be leading the sector
Sustainable transport Sustainable fuels a switch to electric vehicles more efficient engines and railroads will reduce greenhouse gas (GHG) emissions
Agriculture amp food A growing population and a high CO2 emission from the agriculture sector require efficiency gains
Source Credit Suisse
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 8
Economics
Positive growth outlook beyondwinter soft patch After a likely soft patch in the winter months we expect very strong growth this year
The main risk to our near-term forecast is new virus strains that may necessitate further shutdowns
James P Sweeney Chief Economist and Regional CIO Americas
Peter James Foley Economist
Global growth rebounded strongly in the second half of 2020 We expect a winter soft patch most noticeable in Europe as viral contagion leads to mobility restrictions that hamper service sector activity Beyond that the growth outlook is very positive
Global demand has recently been propped up by developed market households Real retail sales in developed economies have exceeded pre-pandemic levels since September and are now above the long-term trend Business investment has risen too but not as much as consumption The onus is on business investment to drive the recovery further
A dominant feature of the pandemic economy has been the contrast between goods demand which has recovered sharply and services demand which has suffered due to social distancing The divergence is likely to unwind this year as spending that was redirected to goods in 2020 returns to services in 2021 Services consumption in developed market economies is about twice as large as goods consumption and is likely to increase strongly this year as vaccine rollouts support an expansion of activity
In that sense consumer spending on services might substitute some goods spending But at the same time a resurgent service sector may give further tailwinds to the goods sector through business spending
Uncertainties about variants vaccines and stimulus COVID-19 infections are falling in Europe and the USA But new highly contagious strains risk new or extended shut-downs which are the main downside risk to our near-term forecast
Vaccine rollout has not been smooth but the USA and UK will likely vaccinate a sufficient share of their populations by this summer that a strong services recovery is likely Europe and other major economies lag behind which may mean longer restrictions on activity Normalization appears to be out of reach before Q3 in large economies but vaccinations will support increased mobility
The USA is likely to pass another pandemic stimulus bill soon It will likely cost at least half the USD 19 tn price tag of the original plan but even this reduced size will substantially affect the US growth outlook Direct checks to households will im-mediately boost consumer spending and increase household savings further
There is less uncertainty over Eurozone policy support but it may not be forceful enough Europersquos fiscal policy so far has focused on mitigation rather than stimulation But this means that as the economy recovers fiscal support will fade meaning limited upside to growth The European Central Bank has stated it can ease policy further but it is unclear whether this will boost lending in the real economy
Last yearrsquos contraction in the Eurozone was larger than in the USA But the rebound is likely to be weaker We expect Eu-rozone GDP to grow 50 in 2021 while US GDP should grow 57 (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 9
Global investment strategy
Retain preference for EM equities Continued fiscal and monetary policy support and an easing of the pandemic should help Western economies see strong growth in the second half of the year
We retain a cyclical tilt in portfolio allocations through overweight positions in equities with a preference for EM equities and commodities
Philipp Lisibach Chief Global Strategist
The Credit Suisse Investment Committee (IC) has reduced emerging market hard currency (EM HC) sovereign bonds to strategic allocations and changed the return outlook for devel-oped market investment grade (IG) bonds from attractive to neutral Equity allocations are kept at overweight with a continued preference for emerging markets The BCOM also remains at overweight
Reflation expected to support cyclical assets Even though the pandemic continues to weigh on economic activity falling infection rates and hospitalizations alongside vaccine rollouts should allow economies to reopen In combi-nation with continued fiscal and monetary policy support Western economies are likely to see exceptionally strong growth in the second half of 2021 The USA is currently benefiting from a second relief package which is likely to be followed by a third one soon adding fuel to the expected concerted recovery
As such the IC keeps a cyclical bias in portfolio allocations expressed by overweights in equities and the broad commod-ity index (BCOM) In equities we continue to express a pref-erence for emerging markets specifically Chinese equities which show strong price momentum having outperformed global equities since the start of the year Although China has initiated policy-tightening measures we think it will take these steps in a controlled manner without risking denting market sentiment
Risk of inflation scare mitigated by central bank com-mitments Besides the risk that new virus strains with potential resistance to vaccines may fuel market concerns markets could start consolidating in coming months should a rise in US inflation
due to base effects lead to an inflation scare Although we think that such an inflation increase will be temporary uncer-tainty about the outlook for the second half is elevated due to the expected strong growth and likely supply-side bottle-necks as economies reopen To mitigate this risk the contin-ued commitment by central banks above all the US Federal Reserve (Fed) to keep financial conditions easy will be key Recent comments by Fed Chair Powell stressing patience and suggesting that the economy is far from overheating give us confidence that this key market support will stay in place For real assets such as equities and commodities this should continue to prove beneficial
Tight credit spreads Although the anchoring of treasury yields for shorter maturities via central banksrsquo rate guidance should prevent a sudden surge in longer-dated yields we expect them to grind higher as growth momentum builds Thus performance is expected to continue to suffer and the IC is keeping government bonds at underweight Due to tight IG credit spreads the IC has reduced the return outlook for IG from attractive to neutral For EM HC sovereign bonds we take profit on our successful overweight and cut portfolio allocations back to strategic levels as spreads have eroded Investors should find more value in EM HC corporate as well as selected EM local sovereign bonds Despite some USD consolidation at the start of this year the USD is likely to continue its weakening trend against other major currencies in coming months
Watch a video featuring the highlights of the Credit Suisse investment strategy wwwcredit-suissecomciofilm
(15022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 10
Special topic
ESG Integrated Investing according to environmental social and governance (ESG) criteria is in the process of becoming mainstream
Combining the House View with ESG convictions ldquoESG Integratedrdquo is a set of best ideas for investors to gradually transition to multi-asset portfolios that perform solidly both on traditional financial performance metrics and on ESG metrics ldquoESG Integratedrdquo is part of our Signature Convictions
Nannette Hechler-Faydherbe Chief Investment Officer ndash International Wealth Management
Jessie Gisiger Head of Credit Strategy and Investment Themes
Green transitions are at the heart of the fiscal spending and recovery plans put in place in response to the COVID-19 pandemic Against this backdrop strong regulatory momen-tum and fiscal ambitions in the USA Europe and China have only added to a global trend toward integrating ESG criteria at every level of economic activity
There is growing evidence that adhering to ESG criteria not only helps to mitigate our impact on climate change but also supports financial risk-reward for several reasons First be-sides increasing transparency and awareness ESG filters help keep in check the risk of heightened regulatory scrutiny that non-ESG-compliant business practices increasingly face Second ESG factors can impact financial business conditions such as the incurred cost of capital Focusing on good gover-nance and keeping an eye on regulatory risk are equally likely to be beneficial when considering default risk in the corporate bond market Third there are strong investment themes emerging from the policy support currently developing espe-cially in climate change to achieve net-zero carbon emissions by 2050
Signature Convictions ESG Integrated Combining key elements of the Credit Suisse House View with thematic priorities in ESG investing that emerge from these catalysts we have developed a set of best ideas (see table) that can help investors gradually transition their invest-ments toward multi-asset portfolios that perform solidly on both traditional financial performance metrics as well as ESG metrics
In fixed income ESG emerging market corporate bonds and ESG subordinated bonds offer investors an avenue to earn a yield pick-up but at a lower risk of credit spread widening than the broader index Empirical assessments have also shown that companies with higher ESG scores tend to have a lower probability of default Investors looking for an equiva-lent to money-market instruments may consider impact invest-ments which deliver low single-digit returns with limited vola-tility
In equities we highlight the Supertrends climate change and sustainable infrastructure as two key ESG-related themes that are focused on decarbonizing economic activity and are catalyzed by global regulatory momentum For investors looking for single-stock investments our Credit Suisse ESG Top 25 list includes stocks from our high conviction list that are in category 3 (ldquoESG awarerdquo) or category 4 (ldquoThematicrdquo) of our Credit Suisse ESG classification framework
Investors who would like to invest according to our preference for EM equities also have the option of doing so in an ESG-compliant manner through the MSCI Emerging Markets ESG Leaders Index That index has on average outperformed the MSCI Emerging Markets Index since 2008 This outperfor-mance can be explained by the MSCI Emerging Markets ESG Leaders Indexrsquos higher exposure to growth sectors and strong orientation to new economy sectors that benefit from powerful structural growth drivers Separately green real estate is likely to lead to higher occupancy rates and a lower probabil-ity of income loss resulting in a more stable income stream
For investors looking to alternative investments for further diversification impact private equity sustainable alpha hedge fund and carbon emission allowance futures are also interest-ing
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 11
Signature Convictions ESG Integrated
Source Credit Suisse
(16022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 12
Special topic
Bullish hopes in Chinarsquos Year ofthe Ox Our positive view on equities remains in place We express it through a preference for emerging market particularly Chinese equities
After strong gains so far this year we challenge the quality and longevity of Chinarsquos bull market and explain why we remain optimistic
John William Huia Woods CIO APAC
Just ahead of Chinese New Year Chinarsquos benchmark Shanghai Composite Index surged to new highs for the year Chinarsquos strong market gains are fueled by a rush of excess liquidity the likes of which we have not seen since 2015 But experienced investors will know that a rising tide can just as easily ndash and quickly ndash turn into an ebbing tide particularly when fundamentals become unsupportive
Red flags In fact red flags are not hard to find Possibly the most im-portant observation is that Chinarsquos growth momentum has passed its peak and will likely decelerate into 2021 A decel-erating economy does not necessarily hurt a bull market but it does not necessarily help it either
Equally important is the view that Chinarsquos ndash increasingly less dovish ndash authorities are unlikely to further stimulate the economy It has been widely observed that they remain vigilant and concerned toward the possible formation of price bubbles in real and financial assets including equity markets
Indeed the Peoplersquos Bank of Chinarsquos willingness in late January 2021 to withdraw rather than add CNY 570 bn of liquidity from interbank markets ahead of the Chinese New Year suggests that a clear inflection point has been reached with monetary policy now normalizing after two years of stimulus and easy money
Amid decelerating economic growth corporate revenues are under pressure meaning analyst earnings revisions are flat-lining and thus failing to keep pace with more vibrant emerging andor developing markets In absolute terms weaker earn-ings exert upward pressure on valuations Yet a liquidity-driven rally can still push valuations higher
Imbalance The liquidity-centric imbalance at the heart of Chinarsquos bull market leaves it exposed and vulnerable to correction in our opinion An environment of tightening monetary policy decel-erating growth and stretched valuations are generally not conducive to sustained price appreciation In fact in Chinarsquos case incrementally greater inflows of liquidity will be required to sustain existing price levels At least from an onshore per-spective the music will stop
Intriguingly attention is now turning to foreign investor inflows which hitherto have been muted But there are reasons why a rebound in sentiment might be expected including improving geopolitical sentiment with the new administration in the USA and expectation of CNY appreciation which should boost returns for USD investors Overall a reacceleration in flows could be a key factor in keeping Chinese markets supported
Sound diversification is key On balance at least for the next few months we remain overweight Chinese equities in a portfolio context Our funda-mental concerns are medium-term in nature while near-term risks ndash supported by liquidity ndash are tilted toward further price gains In line with our House View we emphasize the value of well-diversified exposure to EM equities overall
(15022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 13
Fixed income
EM HC corporate bonds preferred The ongoing reflationary path is going to support long-dated yields warranting a con-tinued cautious stance on government bonds
We reduce our allocation to EM HC sovereign bonds to benchmark weight We no longer see IG credit as attractive and prefer EM HC corporate bonds
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
Global benchmark yields have continued to trend higher in the last few weeks supported by reflationary expectations Despite the marketsrsquo repricing of more US fiscal stimulus the Federal Reserve (Fed) kept control of front-end rates expectations with the US yield curve further steepening as a result Going forward long-dated inflation expectations are still expected to be the main driver of nominal benchmark yields Both should moderately rise in tandem particularly in the USA With other developed regions following the same reflationary theme albeit with a lag we anticipate that global government bonds will remain an unattractive investment We therefore keep exposure below benchmark allocations in portfolios Furthermore we keep a relatively short duration stance in US Eurozone and Swiss bond markets and prefer US inflation-linked bonds over comparable nominal govern-ment bonds
IG credit no longer attractive prefer EM HC corporate bonds We no longer think that global investment grade (IG) credit offers attractive return potential While monetary policy re-mains supportive IG spreads are already at historical lows and no longer offer enough compensation against the further rise in benchmark yields we expect Global high yield (HY) credit market returns should remain attractive thanks to policy support and the economic recovery we project However we
see limited further spread compression potential in US HY and European HY from the current historical lows We believe emerging market hard currency (EM HC) corporate bonds are most attractive within credit with pro-cyclical emerging markets benefiting from the global growth rebound expected this year At the same time and due to their comparatively low benchmark duration EM HC corporate bonds are less sensitive to higher US government yields than global IG EM HC corporates on average provide similar credit fundamentals to developed market credit but offer more attractive spreads amid the current reflationary environment Also we see more opportunities in EM HC HY corporates particularly in Asia where spreads offer a premium of around 200 bp over US HY
EM HC sovereigns reduced to benchmark allocation EM HC sovereign bond valuations are currently tight with spreads not far off the lows reached after the great financial crisis Inflation has largely bottomed out due to base effects food and energy prices and there is limited scope for further monetary stimulus EM HC sovereign bond spreads have a high correlation with US Treasury yields With the latter still on the rise risks to EM HC sovereign bonds are increasing Positioning is at record highs and flows continue to acceler-ate This suggests that a further strong performance is less likely Given these considerations we have decided to reduce EM HC sovereign bonds to benchmark allocation in our portfolios (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 14
Equities
Remain constructive on globalequities We maintain our attractive return outlook for global equities with a preference for emerging markets UK Germany financials materials and health care
After a double-digit earnings decline in 2020 global earnings are set to recover sharply this year
Marc Haumlfliger Global Equity Strategist
We maintain our attractive return outlook for global equities on the back of supportive monetary conditions vaccine roll-outs growing stimulus prospects and our constructive outlook for economic and earnings growth While traditional valuation metrics remain elevated they look less stretched relative to other asset classes such as global treasury bonds The earnings recovery is key to our thesis of attractive returns for global equities as we do not expect further re-ratings (ie higher multiples) to drive equity markets going forward So far the Q4 earnings results underpin our view that companies have learned how to deal with the current circumstances given earnings results are mostly surpassing projections As a result of this strong showing global EPS growth rates (YoY) will likely be positive again for the Q4 2020 earnings season After an overall double-digit earnings decline in 2020 global earnings are set to recover sharply this year ndash particularly in cyclical market segments Risks to our constructive view on equities come from COVID-19 concerns (mutation potential vaccine disappointments) disappointing fiscal stimulus or earlier-than-expected comments about a withdrawal of mon-etary stimulus
In a portfolio context we keep our overweight in emerging market (EM) equities as we remain bearish on the USD ex-pect higher commodity prices and see the re-opening environ-ment as positive for EM equities We expect cyclical segments that lagged the broader equity benchmark in 2020 ndash such as the UK Germany and financials ndash to catch up amid the im-proved economic outlook and rising inflation expectations
Latest view changes In developed market equities we turn neutral from outperform on Hong Kong equities as a result of their strong performance in recent weeks and increasing macro headwinds In EM eq-uities we now expect South African equities to outperform driven by attractive valuation a strong earnings picture and an accommodative central bank We no longer expect Indian equities to underperform and turn neutral following the gov-ernmentrsquos pro-growth budget announcement an improved macroeconomic outlook and earnings estimates being revised higher at a faster pace than peers
Earnings expected to recover in 2021
Last data point 09022020 Historical performance indications and financial market
scenarios are not reliable indicators of current or future performance Source Factset
Estimates Credit Suisse
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 15
Alternative investments
Still positive on commodities Commodity performance has been strong year-to-date A near-term pause is possible but we retain a positive view and prefer diversified exposure with a cyclical bias
Despite recent resilience we expect listed real estate to lag equities In hedge funds we highlight opportunistic long-short discretionary and EM macro managers as well as private credit
Jelena Kucenko Head of Alternative Investments
Stefan Graber Head of Commodity Strategy
Hedge funds Be selective Hedge funds were flat in January as short covering activity at month-end erased initial gains Fundamental long-short and macro funds suffered the most while relative value and event driven were more resilient Our Trading Conditions Barometer is in favorable territory Combined with regional and sector divergences arising from vaccine rollouts compli-ance with environmental social and governance criteria and record levels of capital-market activity this creates opportuni-ties for long-short managers We also highlight private credit strategies with a focus on consumer loans and mid-market companies which should benefit from resilient household fi-nances and a post-pandemic recovery Discretionary and emerging market (EM) macro managers are preferred in case of market setbacks
Commodities Providing cyclicality and inflation hedge Commodities started 2021 on a strong note focusing on positive growth expectations instead of near-term COVID-19 concerns A near-term pause is possible as the latest gains came ahead of an anticipated reacceleration in industrial ac-tivity That said improved bottom-up fundamentals have flipped aggregate curves into backwardation translating into positive roll yields which may attract additional investor inter-est Commodities also provide a hedge should inflation sur-prise to the upside We retain our positive view on the asset class and favor diversified exposure with a cyclical tilt (oil energy) For oil the March OPEC+ meeting is the next event
risk and a potential source of volatility as the group will likely discuss supply hikes We still think that gold offers diversifica-tion and some upside but the bull run could be maturing as yield curves have started to steepen We thus tone down our optimism on the metal
Real estate Expected to underperform equities Listed real estate slightly outperformed global equities in January thanks to strong earnings results in logistics and a rebound in oversold retail companies as short sellers covered their positions But we believe that further upside potential for the sector is limited as the impact of lockdowns is not yet reflected in landlordsrsquo share prices in our view Additionally valuations in structurally resilient sectors such as logistics and data centers already reflect fundamentals This and the prospect of higher long-term yields and an increased risk of US regulatory headwinds reinforce our negative sector view
Private equity Backdrop still positive Robust investment activity at the end of last year pushed pri-vate equity deal values higher but the asset class still offers better priced opportunities than public markets Dry powder ndash committed but uninvested capital ndash is at a record of over USD 2 trn with subdued fundraising activity expected to re-bound as investors increase commitments in 2021 according to data provider Preqin The expected economic rebound is supportive for the asset class but rising long-term interest rates pose risk to financing costs We highlight strategies offering high growth with limited leverage (venture capital growth capital) and secondary funds which can exploit market opportunities tactically generating excess returns over time
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 16
Foreign exchange
Keep favoring cyclical currencies We maintain a short USD bias and prefer commodity and cyclical currencies such as the EUR GBP or SEK
Within our positive emerging market stance we particularly like the CNY KRW BRL and RUB
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
The USD was broadly flat against other major currencies over the last month Investorsrsquo focus on US fiscal stimulus and an expected rise in US inflation allowed for some normalization in previously large USD short positions While the repricing of near-term growth expectations also in light of a more rapid US vaccination campaign created temporary USD resilience we think this improvement is likely partly reflected in the USD already We maintain that as the Federal Reserve (Fed) keeps short-term rates close to zero for longer there is little room for sustained gains in the USD Moreover US fiscal stimulus will not only deteriorate fiscal balances but also deepen the current account deficit This will also benefit the global econ-omy through improved global trade and sentiment which should weigh on the USD Uncertainties relating to new COVID-19 variants and extended USD short positioning re-main a risk in the short term
Constructive on cyclical currencies A slow start to vaccine rollouts and renewed political risks in Italy somewhat dented sentiment toward the EUR in early February Even so the single currency remained stable vs the USD The Eurozone is facing a delayed recovery but this is consensus already and likely temporary in nature With political risks now subsiding the EU recovery fund operational in the next quarter and the global growth recovery benefitting the export-oriented Eurozone we think EURUSD can gain some further ground and target 124 in 3M Elsewhere in Europe we also remain positive on the SEK and the GBP
vs the USD With global reflation set to continue and com-modity prices likely to remain supported through the ongoing rebalancing we still favor commodity currencies in particular the NZD CAD and NOK
BRL RUB CNY and KRW preferred Emerging market (EM) currencies were broadly range-bound on an index level over the last month but with significant re-turn dispersion across currencies The main arguments sup-porting our attractive view on EM FX remain in place We continue to see further scope for a broad appreciation of EM FX versus the USD Even though the EM economic recovery has peaked economic activity still looks solid relative to de-veloped markets External positions remain in good shape and non-resident flows are still supportive In addition with inflation bottoming and food prices increasing scope for dovish EM central bank surprises seems to be exhausted This should be favorable for EM carry versus the USD
The RUB BRL CNY and KRW remain our preferred curren-cies in EM Both the RUB and BRL are cheaply valued Addi-tionally the RUB should profit from attractive risk-adjusted carry and the BRL from more hawkish central bank expecta-tions In Asia we remain positive on the CNY and KRW and neutral on the other Asian FX We lower our 3M USDCNY target to 635 but keep our 12M target at 625 Our USDKRW targets remain unchanged at 1060 and 1010 in 3M and 12M respectively We retain a mild downward bias on the other USDAsia pairs expecting broad USD weak-ness (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 17
Forecasts
At a glance More information on the forecasts and estimates is available Credit Selected indices on request Past performance is not an indicator of future
Yield Spread Duration 3M TR 12M TR fore-performance Performance can be affected by commissions () (bp) (years) forecast cast fees or other charges as well as exchange rate fluctuations BC Global Aggregate 091 33 731 -010 010
BC Global Treasuries 058 9 862 -030 -050
BC Global IG Corp 141 94 735 033 130 Central bank rate10-year government bonds BC Global HY Corp 429 378 416 062 247
CB rate 10Y JPM EMBI Global Di- 480 344 764 032 126 yield versified HC
in Spot 3M 12M Spot 3M 12M
CHF -075 -075 -075 -026 -030 -030 BC = Barclays Capital IG= Investment Grade JPM = JP Morgan (EMBI+) Index data as of 1522021 Forecast as on 1522021
EUR -050 -050 -050 -035 -030 -030 These forecasts are no reliable indicators of future performance Source Bloomberg
USD 013 000-025 000-025 130 140 150 Credit Suisse GBP 010 010 010 062 050 060
AUD 010 010 010 139 130 140
JPY -010 -010 -010 010 010 010 Foreign exchange
Spot 3M 12M Spot rates are closing prices as of 1622021 Forecast date 1122021 These
EURUSD 121 124 125 forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC USDCHF 089 087 088
EURCHF 108 108 110
USDJPY 10594 10200 10000
Equities EURGBP 087 087 086
GBPUSD 139 143 145 Index Spot PE Div y 3M 12M () AUDUSD 078 078 079
MSCI AC World 1679 202 22 1690 1790 USDCAD 126 123 120
US SampP 500 3933 234 21 3950 4150 EURSEK 1004 1010 1020
Eurostoxx 50 3726 181 26 3700 3850 EURNOK 1016 1020 1020
UK FTSE 100 6749 143 43 6700 7000 EURPLN 449 457 459
Japan Topix 1965 185 21 1940 1970 USDCNY 646 635 625
Australia SampPASX 6917 207 38 6900 7150 USDSGD 132 131 128
200 USDKRW 109898 106000 101000
Switzerland SMI 10908 186 28 10950 11400 USDINR 7264 7270 7200
MSCI Emerging Mar- 190621 166 22 194000 207000 USDBRL 538 525 530 kets USDMXN 1994 2050 2150
Prices as of 1622021 Forecast as on 1122021 Gross return (incl dividends) Spot rates are as of 1722021 These forecasts are no reliable indicators of future performance Source Bloomberg These forecasts are no reliable indicators of future performance Source Bloomberg Datastream Credit SuisseIDC Credit SuisseIDC
Commodities Real GDP growth and inflation Spot 3M 12M GDP Inflation
Gold (USDoz) 1793 1900 2000 growth
Silver (USDoz) 273 27 30 in 2020 2021 2022 2020 2021 2022
Platinum (USDoz) 12624 1300 1250 CH -32 35 20 -07 03 02
Palladium (USDoz) 2390 2400 2500 EMU -72 50 42 03 06 10
Copper (USDton) 8416 8300 7900 USA -35 57 35 12 20 21
WTI Crude Oil (USDbbl) 600 60 60 UK -100 53 75 09 14 18
Bloomberg Commodity index 1815 181 186 Australia -20 35 32 08 15 15
Japan -49 17 19 -02 01 03
Spot rates are as of 1722021 forecast as on 1122021 China 23 71 52 25 11 17 These forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC Last forecast update 10022021
These forecasts are no reliable indicators of future performance Source Bloomberg Credit Suisse
(17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 18
Glossary
Risk warnings
Emerging markets Emerging markets are located in countries that possess one or more of the following characteristics a certain degree of political instability relatively unpredictable financial markets and economic growth patterns a financial market that is still at the development stage or a weak economy Emerging market investments usually result in higher risks as a result of political economic credit exchange rate market liquidity legal settlement market shareholder and creditor risks
Hedge funds Regardless of structure hedge funds are not limited to any particular investment discipline or trading strategy and seek to profit in all kinds of markets by using leverage derivative instruments and speculative investment strategies that may increase the risk of investment loss
Commodity investments Commodity transactions carry a high degree of risk and may not be suitable for many private investors The extent of loss due to market movements can be substantial or even result in a total loss
Real estate Investors in real estate are exposed to liquidity foreign currency and other risks including cyclical risk rental and local market risk as well as environmental risk and changes to the legal situation
Currency risks Investments in foreign currencies involve the additional risk that the foreign currency might lose value against the investorrsquos reference currency
Equity risk Equities are subject to market forces and hence fluctuations in value which are not entirely predictable
Market risk Financial markets rise and fall based on economic conditions inflationary pressures world news and business-specific reports While trends may be detected over time it can be difficult to predict the direction of the market and individual stocks This variability puts stock investments at risk of losing value
High Yield bond risk High Yield Bonds are typically rated below investment grade or are unrated and as such are often subject to a higher risk of issuer default
Perpetual Bond risk Perpetual Bonds have no maturity date and therefore the Interest pay-out depends on the viability of the issuer in the very long term
Subordinated Bond risk In case of liquidation of the issuer investors can only get back the principal after other senior creditors are paid
Risk of Bonds with variable deferral of interest terms Investors would face uncertainty over the amount and time of the interest payments to be received
Callable bond risk Investors face reinvestment risk when the issuer exercises its right to redeem the bond before it matures
Risk of Bonds with extendable maturity date Investors would not have a definite schedule of principal repayment
Convertible or exchangeable bond risk Investors are subject to both equity and bond investment risk
Cocos risk The bond may be written-off fully or partially or converted to common stock on the occurrence of a trigger event
Explanation of indices frequently used in reports
Index Comment
Australia SampPASX 200 SampPASX 200 is an Australian market-capitalization-weighted and float-adjusted stock index calculated by Standard and Poors
BC High Yield Corp USD The US Corporate High Yield Index measures USD-denominated non-investment grade fixed-rate and taxable corporate bonds The index is calculated by Barclays
BC High Yield Pan EUR The Euro Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate EUR The US Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate USD The IG Corporate Index tracks the fixed-rate investment-grade dollar-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
Canada SampPTSX comp The SampPTSX composite index is the Canadian equivalent of the SampP 500 Index in the USA The index contains the largest stocks traded on the Toronto Stock Exchange
Consumer Confidence Indices Consumer Confidence Indices (CCIs) are based on surveys of consumers spending intentions and economic situations as well as their concerns and expectations for the immediate future
CS Hedge Fund Index The Credit Suisse Hedge Fund Index is compiled by Credit Suisse Hedge Index LLC It is an asset-weighted hedge fund index and includes only funds as opposed to separate accounts The index reflects performance net of all hedge fund component performance fees and expenses
CS LSI ex govt CHF The Liquid Swiss Index ex govt CHF is a market-capitalized bond index representing the most liquid and tradable portion of the Swiss bond market excluding Swiss government bonds The index is calculated by Credit Suisse
DAX The German Stock Index stock represents 30 of the largest and most liquid German companies that trade on the Frankfurt Exchange
DXY A measure of the value of the US dollar relative to the majority of its most important trading partners The US Dollar Index is similar to other trade-weighted indices which also use the exchange rates from the same major currencies
Eurostoxx 50 Eurostoxx 50 is a market-capitalization-weighted stock index of 50 leading blue-chip companies in the Eurozone
FTSE EPRANAREIT Global Real Estate Index Series The FTSE EPRANAREIT Global Real Estate Index Series is designed to represent general trends in eligible real estate equities worldwide
Hedge Fund Barometer The Hedge Fund Barometer is a proprietary Credit Suisse scoring tool that measures market conditions for hedge fund strategies It comprises four components liquidity volatility systemic risks and business cycle
Japan Topix TOPIX also known as the Tokyo Stock Price Index tracks all large Japanese companies listed in the stock exchanges first section The index calculation excludes temporary issues and preferred stocks
JPM EM hard curr USD The Emerging Market Bond Index Plus tracks the total return of hard-currency sovereign bonds across the most liquid emerging markets The index encompasses US-denominated Brady bonds (dollar-denominated bonds issued by Latin American countries) loans and Eurobonds
JPM EM local curr hedg USD The JPMorgan Government Bond Index tracks local currency bonds issued by emerging market governments across the most accessible markets for international investors
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 19
MSCI AC AsiaPacific The MSCI All Country Asia Pacific Index captures large and mid cap representation across 5 developed market countries and 8 emerging markets countries in the Asia Pacific region With 1000 constituents the index covers approximately 85 of the free float-adjusted market capitalization in each country
MSCI AC World The MSCI All Country World Index captures large and mid cap representation across 23 developed markets and 23 emerging market countries With roughly 2480 constituents the index covers around 85 of the global investable equity opportunity set
MSCI Emerging Markets MSCI Emerging Markets is a free-float-weighted Index designed to measure equity market performance in global emerging markets The index is developed and calculated by Morgan Stanley Capital International
MSCI EMU The MSCI EMU Index (European Economic and Monetary Union) captures large and mid cap representation across the 10 Developed Markets countries in the EMU With 237 constituents the index covers approximately 85 of the free float-adjusted market capitalization of the EMU
MSCI Europe The MSCI Europe Index captures large and mid cap representation across 15 developed markets countries in Europe With 442 constituents the index covers approximately 85 of the free float-adjusted market capitalization across the European developed markets equity universe
MSCI UK The MSCI United Kingdom Index is designed to measure the performance of the large and mid cap segments of the UK market With 111 constituents the index covers approximately 85 of the free float-adjusted market capitalization in the UK
MSCI World MSCI World is an index of global equity markets developed and calculated by Morgan Stanley Capital International Calculations are based on closing prices with dividends reinvested
OECD Composite Leading Indicators OECD Composite Leading Indicators (CLIs) are designed to provide early signals of turning points in business cycles with components that measure early stages of production respond to changes in economic activity and are sensitive to expectations of future activity
Purchasing Managers Indices Purchasing Managers Indices (PMIs) are economic indicators derived from monthly surveys of private-sector companies The two principal producers of PMIs are Markit Group which conducts PMIs for over 30 countries worldwide and the Institute for Supply Management (ISM) which conducts PMIs for the United States The indices include additional sub-indices for manufac-turing surveys such as new orders employment exports stocks of raw materials and finished goods prices of inputs and finished goods and services
Russell 1000 Growth Index The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe based on 1000 large-cap companies with higher price-to-book ratios and higher forecast growth values
Russell 1000 Index The Russell 1000 Index is a stock market index that represents the highest-ranking 1000 stocks in the Russell 3000 Index (encompassing the 3000 largest US-traded stocks with the underlying companies all incorporated in the USA) and representing about 90 of the total market capitalization of that index The Russell 1000 Index has a weighted average market capitalization of USD 81 billion and the median market capitalization is approximately USD 46 billion
Russell 1000 Value Index The Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe based on 1000 large-cap companies with lower price-to-book ratios and lower expected growth values
Switzerland SMI The Swiss Market Index is made up of 20 of the largest companies listed of the Swiss Performance Index universe It represents 85 of the free-float capitalization of the Swiss equity market As a price index the SMI is not adjusted for dividends
UK FTSE 100 FTSE 100 is a market-capitalization-weighted stock index that represents 100 of the most highly capitalized companies traded on the London Stock exchange The equities have an investibility weighting in the index calculation
US SampP 500 Standard and Poors 500 is a capitalization-weighted stock index representing all major industries in the USA which measures the performance of the domestic economy through changes in the aggregate market value
Abbreviations frequently used in reports
Abb Description Abb Description
3612 MMA 3612 month moving average IMF International Monetary Fund
AI Alternative investments LatAm Latin America
APAC Asia Pacific Libor London interbank offered rate
bbl barrel m bd Million barrels per day
BI Bank Indonesia M1 A measure of the money supply that includes all physical money such as coins and currency as well as demand deposits checking accounts and negotiable order of withdrawal accounts
BoC Bank of Canada M2 A measure of money supply that includes cash and checking deposits (M1) as well as savings deposits money market mutual funds and other time deposits
BoE Bank of England M3 A measure of money supply that includes M2 as well as large time deposits institutional money market funds short-term re-purchase agreements and other larger liquid assets
BoJ Bank of Japan MampA Mergers and acquisitions
bp Basis points MAS Monetary Authority of Singapore
BRIC Brazil Russia China India MLP Master Limited Partnership
CAGR Compound annual growth rate MoM Month-on-month
CBOE Chicago Board Options Exchange MPC Monetary Policy Committee
CFO Cash from operations OAS Option-adjusted spread
CFROI Cash flow return on investment OECD Organisation for Economic Co-operation and Development
DCF Discounted cash flow OIS Overnight indexed swap
DM Developed Market OPEC Organization of Petroleum Exporting Countries
DMs Developed Markets PB Price-to-book value
EBITDA Earnings before interest taxes depreciation and amortization PE Price-earnings ratio
ECB European Central Bank PBoC Peoples Bank of China
EEMEA Eastern Europe Middle East and Africa PEG PE ratio divided by growth in EPS
EM Emerging Market PMI Purchasing Managers Index
EMEA Europe Middle East and Africa PPP Purchasing power parity
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 20
EMs Emerging Markets QE Quantitative easing
EMU European Monetary Union QoQ Quarter-on-quarter
EPS Earnings per share rhs right-hand side (for charts)
ETF Exchange traded funds RBA Reserve Bank of Australia
EV Enterprise value RBI Reserve Bank of India
FCF Free cash flow RBNZ Reserve Bank of New Zealand
Fed US Federal Reserve REIT Real estate investment trust
FFO Funds from operations ROE Return on equity
FOMC Federal Open Market Committee ROIC Return on invested capital
FX Foreign exchange RRR Reserve requirement ratio
G10 Group of Ten SAA Strategic asset allocation
G3 Group of Three SDR Special drawing rights
GDP Gross domestic product SNB Swiss National Bank
GPIF Government Pension Investment Fund TAA Tactical asset allocation
HC Hard currency TWI Trade-Weighted Index
HY High yield VIX Volatility Index
IBD Interest-bearing debt WTI West Texas Intermediate
IC Credit Suisse Investment Committee YoY Year-on-year
IG Investment grade YTD Year-to-date
ILB Inflation-linked bond Personal Consumption An indicator of the average increase in prices for all domestic Expenditure (PCE defla- personal consumption tor)
Currency codes frequently used in reports
Code Currency Code Currency
ARS Argentine peso KRW South Korean won
AUD Australian dollar MXN Mexican peso
BRL Brazilian real MYR Malaysian ringgit
CAD Canadian dollar NOK Norwegian krone
CHF Swiss franc NZD New Zealand dollar
CLP Chilean peso PEN Peruvian nuevo sol
CNY Chinese yuan PHP Philippine peso
COP Colombian peso PLN Polish złoty
CZK Czech koruna RUB Russian ruble
EUR Euro SEK Swedish kronakronor
GBP Pound sterling SGD Singapore dollar
HKD Hong Kong dollar THB Thai baht
HUF Hungarian forint TRY Turkish lira
IDR Indonesian rupiah TWD New Taiwan dollar
ILS Israeli new shekel USD United States dollar
INR Indian rupee ZAR South African rand
JPY Japanese yen
Important information on derivatives
Pricing Option premiums and prices mentioned are indicative only Option premiums and prices can be subject to very rapid changes The prices and premiums mentioned are as of the time indicated in the text and might have changed substantially in the meantime
Risks Derivatives are complex instruments and are intended for sale only to investors who are capable of understanding and assuming all the risks involved Investors must be aware that adding option positions to an existing portfolio may change the characteristics and behavior of that portfolio substantially A portfoliorsquos sensitivity to certain market moves can be heavily impacted by the leverage effect of options
Buying calls Investors who buy call options risk the loss of the entire premium paid if the underlying security trades below the strike price at expiration
Buying puts Investors who buy put options risk loss of the entire premium paid if the underlying security finishes above the strike price at expiration
Selling calls Investors who sell calls commit themselves to sell the underlying for the strike price even if the market price of the underlying is substantially higher Investors who sell covered calls (own the underlying security and sell a call) risk limiting their upside to the strike price plus the upfront premium received and may have their security called away if the security price exceeds the strike price of the short call Additionally the investor has full downside participation that is only partially offset by the premium received upfront If investors are forced to sell the underlying they might be subject to taxing Investors shorting naked calls (ie selling calls but without holding the underlying security) risk unlimited losses of security price less strike price
Selling puts Put sellers commit to buying the underlying security at the strike price in the event the security falls below the strike price The maximum loss is the full strike price less the premium received for selling the put
Buying call spreads Investors who buy call spreads (buy a call and sell a call with a higher strike) risk the loss of the entire premium paid if the underlying trades below the lower strike price at expiration The maximum gain from buying call spreads is the difference between the strike prices less the upfront premium paid
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 21
Selling naked call spreads Selling naked call spreads (sell a call and buy a farther out-of-the-money call with no underlying security position) Investors risk a maximum loss of the difference between the long call strike and the short call strike less the upfront premium taken in if the underlying security finishes above the long call strike at expiration The maximum gain is the upfront premium taken in if the security finishes below the short call strike at expiration
Buying put spreads Investors who buy put spreads (buy a put and sell a put with a lower strike price) also have a maximum loss of the upfront premium paid The maximum gain from buying put spreads is the difference between the strike prices less the upfront premium paid
Buying strangles Buying strangles (buy put and buy call) The maximum loss is the entire premium paid for both options if the underlying trades between the put strike and the call strike at expiration
Selling strangles or straddles Investors who are long a security and short a strangle or straddle risk capping their upside in the security to the strike price of the call that is sold plus the upfront premium received Additionally if the security trades below the strike price of the short put investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short put and will also experience losses in the security position if they owns shares The maximum potential loss is the full value of the strike price (less the value of the premium received) plus losses on the long security position Investors who are short naked strangles or straddles have unlimited potential loss since if the security trades above the call strike price investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short call In addition they are obligated to buy the security at the put strike price (less upfront premium received) if the security fin-ishes below the put strike price at expiration
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 22
Important information on mutual funds Fees and charges etc Different types of fees and commissions (subscription fee amount which must be retained in trust assets repurchase fee etc) are charged when investment trustsfunds are purchased and sold In addition apart from these fees and commissions trust and management fees and other fees (audit fee trust administrative charges carried interest etc) are charged and borne by you through your trust asset Fees and commissions borne by you will be a sum of these amounts Such fees and commissions vary depending on the investment trustfund and depending on the investment status and therefore we cannot provide specific amounts or calculation methods
For detailed information on fees and commissions etc of each re-spective investment trustfund please refer to the pre-contract documents (prospectus and other supplementary documents)
Important information on dividends bull Dividends are different to interest on deposits and are paid from the net asset value of investment trustsfunds Therefore when dividends are paid the base value (net asset value per unit) will decrease by an amount equivalent to the amount paid
bull Dividends may be paid exceeding the profit earned during the calculation period (trading profit including profits of dividends etc after expenses) In this case the base value (net asset value per unit) on the settlement date in this period will decrease compared to that on the settlement date in the previous period Also the level of dividends does not always reflect the rate of return for the investment trustfund during the calculation period
bull A part or all of dividends may be virtually equivalent to some repayment of the principal depending on the purchase price of the investment trustfund by an investor The same can be applied to a case that an increase in the base value (net asset value per unit) is smaller than a dividend amount due to the investment status after purchase of the investment trustfund
Please refer to the prospectus for details
Explanation of major risks (description pursuant to Ar-ticle 37 (Regulation on Advertising etc) of the Financial Instruments and Exchange Act etc) The risks described below are a summary of some general risks of investment trustsfunds (risks which have an impact on net asset value) and do not cover all risks Please refer to the pre-trade documents (prospectus and other supplementary documents)
Price volatility risk Investment trustsfunds invest mainly in equities bonds and derivative products etc The value of the investment trustfund will go up or down due to increases or decreases in the prices of such investments Further the value of such investments will be impacted by political and economic factors the financial standing of an issuer market demand and supply interest rates and other factors
Foreign currency risk Investment trustsfunds which invest in equities or bonds etc denominated in foreign currencies entail a foreign currency risk and the base value (or net asset value) of investment trustsfunds may change depending on the currency exchange rate Even when you do not experience a loss of invest-ment principal when calculated in the base currency you may suffer a loss at conversion into Japanese yen due to fluctuations in exchange rates Fur-thermore investment trustsfunds which utilize currency trading among multiple currencies may incur costs due to such currency trading depending on the difference in short-term interest rates between the currencies and you may suffer a loss
Credit risk For investment trustsfunds which invest in equities or bonds etc the prices of these investments may increase and decrease due to changes in the business or financial standing of the issuer and other factors and you may suffer a loss
Risk pertaining to liquidity Where there is sudden high volume in a particular investment or when sudden changes in the external environment surrounding markets triggers a sudden downturn in a market or period of market turmoil etc investments may not be flexibly traded In such a case a decline in the price of the investment may impact the base value (or net asset value) of the investment trust result-ing in a loss Further the management company may decide to stop calcu-lation of net asset prices or suspend sell or redemption claims
In addition for certain types of investment trustfund there is a risk that particular investments may be designated to a separate account (or side pocket) due to a lack of liquidity When a separate account is utilized by in-vestment trustsfunds restrictions may apply as to when such investments can be liquidated through a sell or redemption claim and there may be a re-striction in the timing or form of redemption claim permissible In particular for Fund of Fund investments when an investment trustfund makes an in-vestment without time limit in another fund the investment trustfund may be influenced by investment results in the other funds
Risk associated with an outflow of money received from sales orders When there is a large volume of sale orders in a short period of time the investment trustfund may be forced to sell structured securities at a lower rate than the prevailing market price to refund monies to investors and as a result you may suffer a loss Also alternative investment trustsfunds gen-erally have a limitation in selling or cashing out the investment compared to traditional investment trustsfunds Many alternative investment trustsfunds only accept a sell or redemption order on a monthly or quarterly basis and therefore you may not be able to rapidly exit the investment in for example times of economic uncertainty
Redemption risk Investment trustsfunds may become subject to mandatory redemption due to a certain reason For details please refer to the pre-trade documents (prospectus and other supplementary documents) before subscription
Concentration risk Investment trustsfunds which invest in a certain investment product or similar investment product group may significantly decrease in value (net asset value) under severe market circumstances
Country risk When changes in political economic and social conditions in investment destination countries and regions cause a dislocation in financial and security markets security prices may significantly change Also investments in emerging markets involve unique risks including small market size and trade volume political and social uncertainties undeveloped market infrastructure such as a clearing system undeveloped information disclosure system and legal system by supervising authorities large fluctuations in exchange rates restrictions on currency remittance to foreign countries and other factors and therefore may have larger price fluctuations compared to investments in major developed markets
Important information on non-Japanese stocks Please refer to the issuer information when you purchase non-Japanese stocks
Disclaimer This material is published solely for information purposes and is intended for the recipientrsquos sole use Credit Suisse does not represent or warrant its ac-curacy or completeness The material is not directly or indirectly intended for any investment solicitation and does not constitute an invitation or offer to conclude a transaction contract for financial instruments etc Credit Suisse accepts no liability for loss arising from the use of the information in this material It is recommended that you consult with the third party professional advisors as to legal or tax issues etc This material should not be reproduced or quoted without the prior express written consent of Credit Suisse The information and opinions expressed in this material were produced by Private Banking Division at Credit Suisse as of the date of writing and are subject to change without notice Views expressed in respect of particular investment products in this material may be different from or inconsistent with the ob-
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 23
servations and views of other divisions besides Private Banking due to the differences in evaluation criteria This material is solely distributed in Japan by Credit Suisse Securities (Japan) Limited Credit Suisse Securities (Japan) Limited will not distribute or forward it outside Japan
You may incur a loss as a result of fluctuations in stock prices if you invest in stocks In relation to foreign stocks you may incur a loss in such stocks due to foreign exchange rate fluctuations etc The market value of bonds is affected by interest rate fluctuations or changes in the financial standing of any issuer etc as such you may incur a loss if you sell such bonds before they are redeemed In relation to foreign bonds you may incur a loss in such bonds due to foreign exchange rate fluctuations etc The net asset value of mutual funds can fall as well as rise due to price changes of underlying stocks bonds etc and foreign exchange rate fluctuations and this may cause you to incur a loss
Structured securities and derivatives are complex instruments 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 of any structured security or transaction may be affected by changes in financial market conditions reference indices volatility and the credit quality of any issuer or reference issuer
Furthermore there are structured securities on which you may incur a loss since the redemption amounts are linked with fluctuations in reference indices etc There are also derivatives on which potential losses may exceed the amount of the initial investment Commission rates for any transactions will be as per the rates agreed between Credit Suisse and you For transactions conducted on a principal to principal basis between Credit Suisse and you the purchase or sale price will be the total consideration Transactions con-
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By purchasing financial instruments etc you may incur a loss or a loss in excess of the principal as a result of fluctuations in market prices or other financial indices etc Please read carefully the Pre-Contract Documentation provided for an explanation of associated risks and commissions etc of individual financial instruments etc prior to purchase Please contact your Relationship Manager if you have any questions
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Copyright copy 2021 Credit Suisse Group AG andor its affiliates All rights reserved
21C013A_IS_J
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 24
Imprint
Publisher Credit Suisse Private Banking amp Wealth Management Investment Solutions amp Products
Information about other Investment Solutions amp Products publications Internet httpsinvestmentcredit-suissecom
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Subscription (clients) Please contact your customer advisor to subscribe to this publication
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Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 25
Economics
Positive growth outlook beyondwinter soft patch After a likely soft patch in the winter months we expect very strong growth this year
The main risk to our near-term forecast is new virus strains that may necessitate further shutdowns
James P Sweeney Chief Economist and Regional CIO Americas
Peter James Foley Economist
Global growth rebounded strongly in the second half of 2020 We expect a winter soft patch most noticeable in Europe as viral contagion leads to mobility restrictions that hamper service sector activity Beyond that the growth outlook is very positive
Global demand has recently been propped up by developed market households Real retail sales in developed economies have exceeded pre-pandemic levels since September and are now above the long-term trend Business investment has risen too but not as much as consumption The onus is on business investment to drive the recovery further
A dominant feature of the pandemic economy has been the contrast between goods demand which has recovered sharply and services demand which has suffered due to social distancing The divergence is likely to unwind this year as spending that was redirected to goods in 2020 returns to services in 2021 Services consumption in developed market economies is about twice as large as goods consumption and is likely to increase strongly this year as vaccine rollouts support an expansion of activity
In that sense consumer spending on services might substitute some goods spending But at the same time a resurgent service sector may give further tailwinds to the goods sector through business spending
Uncertainties about variants vaccines and stimulus COVID-19 infections are falling in Europe and the USA But new highly contagious strains risk new or extended shut-downs which are the main downside risk to our near-term forecast
Vaccine rollout has not been smooth but the USA and UK will likely vaccinate a sufficient share of their populations by this summer that a strong services recovery is likely Europe and other major economies lag behind which may mean longer restrictions on activity Normalization appears to be out of reach before Q3 in large economies but vaccinations will support increased mobility
The USA is likely to pass another pandemic stimulus bill soon It will likely cost at least half the USD 19 tn price tag of the original plan but even this reduced size will substantially affect the US growth outlook Direct checks to households will im-mediately boost consumer spending and increase household savings further
There is less uncertainty over Eurozone policy support but it may not be forceful enough Europersquos fiscal policy so far has focused on mitigation rather than stimulation But this means that as the economy recovers fiscal support will fade meaning limited upside to growth The European Central Bank has stated it can ease policy further but it is unclear whether this will boost lending in the real economy
Last yearrsquos contraction in the Eurozone was larger than in the USA But the rebound is likely to be weaker We expect Eu-rozone GDP to grow 50 in 2021 while US GDP should grow 57 (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 9
Global investment strategy
Retain preference for EM equities Continued fiscal and monetary policy support and an easing of the pandemic should help Western economies see strong growth in the second half of the year
We retain a cyclical tilt in portfolio allocations through overweight positions in equities with a preference for EM equities and commodities
Philipp Lisibach Chief Global Strategist
The Credit Suisse Investment Committee (IC) has reduced emerging market hard currency (EM HC) sovereign bonds to strategic allocations and changed the return outlook for devel-oped market investment grade (IG) bonds from attractive to neutral Equity allocations are kept at overweight with a continued preference for emerging markets The BCOM also remains at overweight
Reflation expected to support cyclical assets Even though the pandemic continues to weigh on economic activity falling infection rates and hospitalizations alongside vaccine rollouts should allow economies to reopen In combi-nation with continued fiscal and monetary policy support Western economies are likely to see exceptionally strong growth in the second half of 2021 The USA is currently benefiting from a second relief package which is likely to be followed by a third one soon adding fuel to the expected concerted recovery
As such the IC keeps a cyclical bias in portfolio allocations expressed by overweights in equities and the broad commod-ity index (BCOM) In equities we continue to express a pref-erence for emerging markets specifically Chinese equities which show strong price momentum having outperformed global equities since the start of the year Although China has initiated policy-tightening measures we think it will take these steps in a controlled manner without risking denting market sentiment
Risk of inflation scare mitigated by central bank com-mitments Besides the risk that new virus strains with potential resistance to vaccines may fuel market concerns markets could start consolidating in coming months should a rise in US inflation
due to base effects lead to an inflation scare Although we think that such an inflation increase will be temporary uncer-tainty about the outlook for the second half is elevated due to the expected strong growth and likely supply-side bottle-necks as economies reopen To mitigate this risk the contin-ued commitment by central banks above all the US Federal Reserve (Fed) to keep financial conditions easy will be key Recent comments by Fed Chair Powell stressing patience and suggesting that the economy is far from overheating give us confidence that this key market support will stay in place For real assets such as equities and commodities this should continue to prove beneficial
Tight credit spreads Although the anchoring of treasury yields for shorter maturities via central banksrsquo rate guidance should prevent a sudden surge in longer-dated yields we expect them to grind higher as growth momentum builds Thus performance is expected to continue to suffer and the IC is keeping government bonds at underweight Due to tight IG credit spreads the IC has reduced the return outlook for IG from attractive to neutral For EM HC sovereign bonds we take profit on our successful overweight and cut portfolio allocations back to strategic levels as spreads have eroded Investors should find more value in EM HC corporate as well as selected EM local sovereign bonds Despite some USD consolidation at the start of this year the USD is likely to continue its weakening trend against other major currencies in coming months
Watch a video featuring the highlights of the Credit Suisse investment strategy wwwcredit-suissecomciofilm
(15022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 10
Special topic
ESG Integrated Investing according to environmental social and governance (ESG) criteria is in the process of becoming mainstream
Combining the House View with ESG convictions ldquoESG Integratedrdquo is a set of best ideas for investors to gradually transition to multi-asset portfolios that perform solidly both on traditional financial performance metrics and on ESG metrics ldquoESG Integratedrdquo is part of our Signature Convictions
Nannette Hechler-Faydherbe Chief Investment Officer ndash International Wealth Management
Jessie Gisiger Head of Credit Strategy and Investment Themes
Green transitions are at the heart of the fiscal spending and recovery plans put in place in response to the COVID-19 pandemic Against this backdrop strong regulatory momen-tum and fiscal ambitions in the USA Europe and China have only added to a global trend toward integrating ESG criteria at every level of economic activity
There is growing evidence that adhering to ESG criteria not only helps to mitigate our impact on climate change but also supports financial risk-reward for several reasons First be-sides increasing transparency and awareness ESG filters help keep in check the risk of heightened regulatory scrutiny that non-ESG-compliant business practices increasingly face Second ESG factors can impact financial business conditions such as the incurred cost of capital Focusing on good gover-nance and keeping an eye on regulatory risk are equally likely to be beneficial when considering default risk in the corporate bond market Third there are strong investment themes emerging from the policy support currently developing espe-cially in climate change to achieve net-zero carbon emissions by 2050
Signature Convictions ESG Integrated Combining key elements of the Credit Suisse House View with thematic priorities in ESG investing that emerge from these catalysts we have developed a set of best ideas (see table) that can help investors gradually transition their invest-ments toward multi-asset portfolios that perform solidly on both traditional financial performance metrics as well as ESG metrics
In fixed income ESG emerging market corporate bonds and ESG subordinated bonds offer investors an avenue to earn a yield pick-up but at a lower risk of credit spread widening than the broader index Empirical assessments have also shown that companies with higher ESG scores tend to have a lower probability of default Investors looking for an equiva-lent to money-market instruments may consider impact invest-ments which deliver low single-digit returns with limited vola-tility
In equities we highlight the Supertrends climate change and sustainable infrastructure as two key ESG-related themes that are focused on decarbonizing economic activity and are catalyzed by global regulatory momentum For investors looking for single-stock investments our Credit Suisse ESG Top 25 list includes stocks from our high conviction list that are in category 3 (ldquoESG awarerdquo) or category 4 (ldquoThematicrdquo) of our Credit Suisse ESG classification framework
Investors who would like to invest according to our preference for EM equities also have the option of doing so in an ESG-compliant manner through the MSCI Emerging Markets ESG Leaders Index That index has on average outperformed the MSCI Emerging Markets Index since 2008 This outperfor-mance can be explained by the MSCI Emerging Markets ESG Leaders Indexrsquos higher exposure to growth sectors and strong orientation to new economy sectors that benefit from powerful structural growth drivers Separately green real estate is likely to lead to higher occupancy rates and a lower probabil-ity of income loss resulting in a more stable income stream
For investors looking to alternative investments for further diversification impact private equity sustainable alpha hedge fund and carbon emission allowance futures are also interest-ing
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 11
Signature Convictions ESG Integrated
Source Credit Suisse
(16022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 12
Special topic
Bullish hopes in Chinarsquos Year ofthe Ox Our positive view on equities remains in place We express it through a preference for emerging market particularly Chinese equities
After strong gains so far this year we challenge the quality and longevity of Chinarsquos bull market and explain why we remain optimistic
John William Huia Woods CIO APAC
Just ahead of Chinese New Year Chinarsquos benchmark Shanghai Composite Index surged to new highs for the year Chinarsquos strong market gains are fueled by a rush of excess liquidity the likes of which we have not seen since 2015 But experienced investors will know that a rising tide can just as easily ndash and quickly ndash turn into an ebbing tide particularly when fundamentals become unsupportive
Red flags In fact red flags are not hard to find Possibly the most im-portant observation is that Chinarsquos growth momentum has passed its peak and will likely decelerate into 2021 A decel-erating economy does not necessarily hurt a bull market but it does not necessarily help it either
Equally important is the view that Chinarsquos ndash increasingly less dovish ndash authorities are unlikely to further stimulate the economy It has been widely observed that they remain vigilant and concerned toward the possible formation of price bubbles in real and financial assets including equity markets
Indeed the Peoplersquos Bank of Chinarsquos willingness in late January 2021 to withdraw rather than add CNY 570 bn of liquidity from interbank markets ahead of the Chinese New Year suggests that a clear inflection point has been reached with monetary policy now normalizing after two years of stimulus and easy money
Amid decelerating economic growth corporate revenues are under pressure meaning analyst earnings revisions are flat-lining and thus failing to keep pace with more vibrant emerging andor developing markets In absolute terms weaker earn-ings exert upward pressure on valuations Yet a liquidity-driven rally can still push valuations higher
Imbalance The liquidity-centric imbalance at the heart of Chinarsquos bull market leaves it exposed and vulnerable to correction in our opinion An environment of tightening monetary policy decel-erating growth and stretched valuations are generally not conducive to sustained price appreciation In fact in Chinarsquos case incrementally greater inflows of liquidity will be required to sustain existing price levels At least from an onshore per-spective the music will stop
Intriguingly attention is now turning to foreign investor inflows which hitherto have been muted But there are reasons why a rebound in sentiment might be expected including improving geopolitical sentiment with the new administration in the USA and expectation of CNY appreciation which should boost returns for USD investors Overall a reacceleration in flows could be a key factor in keeping Chinese markets supported
Sound diversification is key On balance at least for the next few months we remain overweight Chinese equities in a portfolio context Our funda-mental concerns are medium-term in nature while near-term risks ndash supported by liquidity ndash are tilted toward further price gains In line with our House View we emphasize the value of well-diversified exposure to EM equities overall
(15022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 13
Fixed income
EM HC corporate bonds preferred The ongoing reflationary path is going to support long-dated yields warranting a con-tinued cautious stance on government bonds
We reduce our allocation to EM HC sovereign bonds to benchmark weight We no longer see IG credit as attractive and prefer EM HC corporate bonds
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
Global benchmark yields have continued to trend higher in the last few weeks supported by reflationary expectations Despite the marketsrsquo repricing of more US fiscal stimulus the Federal Reserve (Fed) kept control of front-end rates expectations with the US yield curve further steepening as a result Going forward long-dated inflation expectations are still expected to be the main driver of nominal benchmark yields Both should moderately rise in tandem particularly in the USA With other developed regions following the same reflationary theme albeit with a lag we anticipate that global government bonds will remain an unattractive investment We therefore keep exposure below benchmark allocations in portfolios Furthermore we keep a relatively short duration stance in US Eurozone and Swiss bond markets and prefer US inflation-linked bonds over comparable nominal govern-ment bonds
IG credit no longer attractive prefer EM HC corporate bonds We no longer think that global investment grade (IG) credit offers attractive return potential While monetary policy re-mains supportive IG spreads are already at historical lows and no longer offer enough compensation against the further rise in benchmark yields we expect Global high yield (HY) credit market returns should remain attractive thanks to policy support and the economic recovery we project However we
see limited further spread compression potential in US HY and European HY from the current historical lows We believe emerging market hard currency (EM HC) corporate bonds are most attractive within credit with pro-cyclical emerging markets benefiting from the global growth rebound expected this year At the same time and due to their comparatively low benchmark duration EM HC corporate bonds are less sensitive to higher US government yields than global IG EM HC corporates on average provide similar credit fundamentals to developed market credit but offer more attractive spreads amid the current reflationary environment Also we see more opportunities in EM HC HY corporates particularly in Asia where spreads offer a premium of around 200 bp over US HY
EM HC sovereigns reduced to benchmark allocation EM HC sovereign bond valuations are currently tight with spreads not far off the lows reached after the great financial crisis Inflation has largely bottomed out due to base effects food and energy prices and there is limited scope for further monetary stimulus EM HC sovereign bond spreads have a high correlation with US Treasury yields With the latter still on the rise risks to EM HC sovereign bonds are increasing Positioning is at record highs and flows continue to acceler-ate This suggests that a further strong performance is less likely Given these considerations we have decided to reduce EM HC sovereign bonds to benchmark allocation in our portfolios (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 14
Equities
Remain constructive on globalequities We maintain our attractive return outlook for global equities with a preference for emerging markets UK Germany financials materials and health care
After a double-digit earnings decline in 2020 global earnings are set to recover sharply this year
Marc Haumlfliger Global Equity Strategist
We maintain our attractive return outlook for global equities on the back of supportive monetary conditions vaccine roll-outs growing stimulus prospects and our constructive outlook for economic and earnings growth While traditional valuation metrics remain elevated they look less stretched relative to other asset classes such as global treasury bonds The earnings recovery is key to our thesis of attractive returns for global equities as we do not expect further re-ratings (ie higher multiples) to drive equity markets going forward So far the Q4 earnings results underpin our view that companies have learned how to deal with the current circumstances given earnings results are mostly surpassing projections As a result of this strong showing global EPS growth rates (YoY) will likely be positive again for the Q4 2020 earnings season After an overall double-digit earnings decline in 2020 global earnings are set to recover sharply this year ndash particularly in cyclical market segments Risks to our constructive view on equities come from COVID-19 concerns (mutation potential vaccine disappointments) disappointing fiscal stimulus or earlier-than-expected comments about a withdrawal of mon-etary stimulus
In a portfolio context we keep our overweight in emerging market (EM) equities as we remain bearish on the USD ex-pect higher commodity prices and see the re-opening environ-ment as positive for EM equities We expect cyclical segments that lagged the broader equity benchmark in 2020 ndash such as the UK Germany and financials ndash to catch up amid the im-proved economic outlook and rising inflation expectations
Latest view changes In developed market equities we turn neutral from outperform on Hong Kong equities as a result of their strong performance in recent weeks and increasing macro headwinds In EM eq-uities we now expect South African equities to outperform driven by attractive valuation a strong earnings picture and an accommodative central bank We no longer expect Indian equities to underperform and turn neutral following the gov-ernmentrsquos pro-growth budget announcement an improved macroeconomic outlook and earnings estimates being revised higher at a faster pace than peers
Earnings expected to recover in 2021
Last data point 09022020 Historical performance indications and financial market
scenarios are not reliable indicators of current or future performance Source Factset
Estimates Credit Suisse
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 15
Alternative investments
Still positive on commodities Commodity performance has been strong year-to-date A near-term pause is possible but we retain a positive view and prefer diversified exposure with a cyclical bias
Despite recent resilience we expect listed real estate to lag equities In hedge funds we highlight opportunistic long-short discretionary and EM macro managers as well as private credit
Jelena Kucenko Head of Alternative Investments
Stefan Graber Head of Commodity Strategy
Hedge funds Be selective Hedge funds were flat in January as short covering activity at month-end erased initial gains Fundamental long-short and macro funds suffered the most while relative value and event driven were more resilient Our Trading Conditions Barometer is in favorable territory Combined with regional and sector divergences arising from vaccine rollouts compli-ance with environmental social and governance criteria and record levels of capital-market activity this creates opportuni-ties for long-short managers We also highlight private credit strategies with a focus on consumer loans and mid-market companies which should benefit from resilient household fi-nances and a post-pandemic recovery Discretionary and emerging market (EM) macro managers are preferred in case of market setbacks
Commodities Providing cyclicality and inflation hedge Commodities started 2021 on a strong note focusing on positive growth expectations instead of near-term COVID-19 concerns A near-term pause is possible as the latest gains came ahead of an anticipated reacceleration in industrial ac-tivity That said improved bottom-up fundamentals have flipped aggregate curves into backwardation translating into positive roll yields which may attract additional investor inter-est Commodities also provide a hedge should inflation sur-prise to the upside We retain our positive view on the asset class and favor diversified exposure with a cyclical tilt (oil energy) For oil the March OPEC+ meeting is the next event
risk and a potential source of volatility as the group will likely discuss supply hikes We still think that gold offers diversifica-tion and some upside but the bull run could be maturing as yield curves have started to steepen We thus tone down our optimism on the metal
Real estate Expected to underperform equities Listed real estate slightly outperformed global equities in January thanks to strong earnings results in logistics and a rebound in oversold retail companies as short sellers covered their positions But we believe that further upside potential for the sector is limited as the impact of lockdowns is not yet reflected in landlordsrsquo share prices in our view Additionally valuations in structurally resilient sectors such as logistics and data centers already reflect fundamentals This and the prospect of higher long-term yields and an increased risk of US regulatory headwinds reinforce our negative sector view
Private equity Backdrop still positive Robust investment activity at the end of last year pushed pri-vate equity deal values higher but the asset class still offers better priced opportunities than public markets Dry powder ndash committed but uninvested capital ndash is at a record of over USD 2 trn with subdued fundraising activity expected to re-bound as investors increase commitments in 2021 according to data provider Preqin The expected economic rebound is supportive for the asset class but rising long-term interest rates pose risk to financing costs We highlight strategies offering high growth with limited leverage (venture capital growth capital) and secondary funds which can exploit market opportunities tactically generating excess returns over time
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 16
Foreign exchange
Keep favoring cyclical currencies We maintain a short USD bias and prefer commodity and cyclical currencies such as the EUR GBP or SEK
Within our positive emerging market stance we particularly like the CNY KRW BRL and RUB
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
The USD was broadly flat against other major currencies over the last month Investorsrsquo focus on US fiscal stimulus and an expected rise in US inflation allowed for some normalization in previously large USD short positions While the repricing of near-term growth expectations also in light of a more rapid US vaccination campaign created temporary USD resilience we think this improvement is likely partly reflected in the USD already We maintain that as the Federal Reserve (Fed) keeps short-term rates close to zero for longer there is little room for sustained gains in the USD Moreover US fiscal stimulus will not only deteriorate fiscal balances but also deepen the current account deficit This will also benefit the global econ-omy through improved global trade and sentiment which should weigh on the USD Uncertainties relating to new COVID-19 variants and extended USD short positioning re-main a risk in the short term
Constructive on cyclical currencies A slow start to vaccine rollouts and renewed political risks in Italy somewhat dented sentiment toward the EUR in early February Even so the single currency remained stable vs the USD The Eurozone is facing a delayed recovery but this is consensus already and likely temporary in nature With political risks now subsiding the EU recovery fund operational in the next quarter and the global growth recovery benefitting the export-oriented Eurozone we think EURUSD can gain some further ground and target 124 in 3M Elsewhere in Europe we also remain positive on the SEK and the GBP
vs the USD With global reflation set to continue and com-modity prices likely to remain supported through the ongoing rebalancing we still favor commodity currencies in particular the NZD CAD and NOK
BRL RUB CNY and KRW preferred Emerging market (EM) currencies were broadly range-bound on an index level over the last month but with significant re-turn dispersion across currencies The main arguments sup-porting our attractive view on EM FX remain in place We continue to see further scope for a broad appreciation of EM FX versus the USD Even though the EM economic recovery has peaked economic activity still looks solid relative to de-veloped markets External positions remain in good shape and non-resident flows are still supportive In addition with inflation bottoming and food prices increasing scope for dovish EM central bank surprises seems to be exhausted This should be favorable for EM carry versus the USD
The RUB BRL CNY and KRW remain our preferred curren-cies in EM Both the RUB and BRL are cheaply valued Addi-tionally the RUB should profit from attractive risk-adjusted carry and the BRL from more hawkish central bank expecta-tions In Asia we remain positive on the CNY and KRW and neutral on the other Asian FX We lower our 3M USDCNY target to 635 but keep our 12M target at 625 Our USDKRW targets remain unchanged at 1060 and 1010 in 3M and 12M respectively We retain a mild downward bias on the other USDAsia pairs expecting broad USD weak-ness (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 17
Forecasts
At a glance More information on the forecasts and estimates is available Credit Selected indices on request Past performance is not an indicator of future
Yield Spread Duration 3M TR 12M TR fore-performance Performance can be affected by commissions () (bp) (years) forecast cast fees or other charges as well as exchange rate fluctuations BC Global Aggregate 091 33 731 -010 010
BC Global Treasuries 058 9 862 -030 -050
BC Global IG Corp 141 94 735 033 130 Central bank rate10-year government bonds BC Global HY Corp 429 378 416 062 247
CB rate 10Y JPM EMBI Global Di- 480 344 764 032 126 yield versified HC
in Spot 3M 12M Spot 3M 12M
CHF -075 -075 -075 -026 -030 -030 BC = Barclays Capital IG= Investment Grade JPM = JP Morgan (EMBI+) Index data as of 1522021 Forecast as on 1522021
EUR -050 -050 -050 -035 -030 -030 These forecasts are no reliable indicators of future performance Source Bloomberg
USD 013 000-025 000-025 130 140 150 Credit Suisse GBP 010 010 010 062 050 060
AUD 010 010 010 139 130 140
JPY -010 -010 -010 010 010 010 Foreign exchange
Spot 3M 12M Spot rates are closing prices as of 1622021 Forecast date 1122021 These
EURUSD 121 124 125 forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC USDCHF 089 087 088
EURCHF 108 108 110
USDJPY 10594 10200 10000
Equities EURGBP 087 087 086
GBPUSD 139 143 145 Index Spot PE Div y 3M 12M () AUDUSD 078 078 079
MSCI AC World 1679 202 22 1690 1790 USDCAD 126 123 120
US SampP 500 3933 234 21 3950 4150 EURSEK 1004 1010 1020
Eurostoxx 50 3726 181 26 3700 3850 EURNOK 1016 1020 1020
UK FTSE 100 6749 143 43 6700 7000 EURPLN 449 457 459
Japan Topix 1965 185 21 1940 1970 USDCNY 646 635 625
Australia SampPASX 6917 207 38 6900 7150 USDSGD 132 131 128
200 USDKRW 109898 106000 101000
Switzerland SMI 10908 186 28 10950 11400 USDINR 7264 7270 7200
MSCI Emerging Mar- 190621 166 22 194000 207000 USDBRL 538 525 530 kets USDMXN 1994 2050 2150
Prices as of 1622021 Forecast as on 1122021 Gross return (incl dividends) Spot rates are as of 1722021 These forecasts are no reliable indicators of future performance Source Bloomberg These forecasts are no reliable indicators of future performance Source Bloomberg Datastream Credit SuisseIDC Credit SuisseIDC
Commodities Real GDP growth and inflation Spot 3M 12M GDP Inflation
Gold (USDoz) 1793 1900 2000 growth
Silver (USDoz) 273 27 30 in 2020 2021 2022 2020 2021 2022
Platinum (USDoz) 12624 1300 1250 CH -32 35 20 -07 03 02
Palladium (USDoz) 2390 2400 2500 EMU -72 50 42 03 06 10
Copper (USDton) 8416 8300 7900 USA -35 57 35 12 20 21
WTI Crude Oil (USDbbl) 600 60 60 UK -100 53 75 09 14 18
Bloomberg Commodity index 1815 181 186 Australia -20 35 32 08 15 15
Japan -49 17 19 -02 01 03
Spot rates are as of 1722021 forecast as on 1122021 China 23 71 52 25 11 17 These forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC Last forecast update 10022021
These forecasts are no reliable indicators of future performance Source Bloomberg Credit Suisse
(17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 18
Glossary
Risk warnings
Emerging markets Emerging markets are located in countries that possess one or more of the following characteristics a certain degree of political instability relatively unpredictable financial markets and economic growth patterns a financial market that is still at the development stage or a weak economy Emerging market investments usually result in higher risks as a result of political economic credit exchange rate market liquidity legal settlement market shareholder and creditor risks
Hedge funds Regardless of structure hedge funds are not limited to any particular investment discipline or trading strategy and seek to profit in all kinds of markets by using leverage derivative instruments and speculative investment strategies that may increase the risk of investment loss
Commodity investments Commodity transactions carry a high degree of risk and may not be suitable for many private investors The extent of loss due to market movements can be substantial or even result in a total loss
Real estate Investors in real estate are exposed to liquidity foreign currency and other risks including cyclical risk rental and local market risk as well as environmental risk and changes to the legal situation
Currency risks Investments in foreign currencies involve the additional risk that the foreign currency might lose value against the investorrsquos reference currency
Equity risk Equities are subject to market forces and hence fluctuations in value which are not entirely predictable
Market risk Financial markets rise and fall based on economic conditions inflationary pressures world news and business-specific reports While trends may be detected over time it can be difficult to predict the direction of the market and individual stocks This variability puts stock investments at risk of losing value
High Yield bond risk High Yield Bonds are typically rated below investment grade or are unrated and as such are often subject to a higher risk of issuer default
Perpetual Bond risk Perpetual Bonds have no maturity date and therefore the Interest pay-out depends on the viability of the issuer in the very long term
Subordinated Bond risk In case of liquidation of the issuer investors can only get back the principal after other senior creditors are paid
Risk of Bonds with variable deferral of interest terms Investors would face uncertainty over the amount and time of the interest payments to be received
Callable bond risk Investors face reinvestment risk when the issuer exercises its right to redeem the bond before it matures
Risk of Bonds with extendable maturity date Investors would not have a definite schedule of principal repayment
Convertible or exchangeable bond risk Investors are subject to both equity and bond investment risk
Cocos risk The bond may be written-off fully or partially or converted to common stock on the occurrence of a trigger event
Explanation of indices frequently used in reports
Index Comment
Australia SampPASX 200 SampPASX 200 is an Australian market-capitalization-weighted and float-adjusted stock index calculated by Standard and Poors
BC High Yield Corp USD The US Corporate High Yield Index measures USD-denominated non-investment grade fixed-rate and taxable corporate bonds The index is calculated by Barclays
BC High Yield Pan EUR The Euro Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate EUR The US Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate USD The IG Corporate Index tracks the fixed-rate investment-grade dollar-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
Canada SampPTSX comp The SampPTSX composite index is the Canadian equivalent of the SampP 500 Index in the USA The index contains the largest stocks traded on the Toronto Stock Exchange
Consumer Confidence Indices Consumer Confidence Indices (CCIs) are based on surveys of consumers spending intentions and economic situations as well as their concerns and expectations for the immediate future
CS Hedge Fund Index The Credit Suisse Hedge Fund Index is compiled by Credit Suisse Hedge Index LLC It is an asset-weighted hedge fund index and includes only funds as opposed to separate accounts The index reflects performance net of all hedge fund component performance fees and expenses
CS LSI ex govt CHF The Liquid Swiss Index ex govt CHF is a market-capitalized bond index representing the most liquid and tradable portion of the Swiss bond market excluding Swiss government bonds The index is calculated by Credit Suisse
DAX The German Stock Index stock represents 30 of the largest and most liquid German companies that trade on the Frankfurt Exchange
DXY A measure of the value of the US dollar relative to the majority of its most important trading partners The US Dollar Index is similar to other trade-weighted indices which also use the exchange rates from the same major currencies
Eurostoxx 50 Eurostoxx 50 is a market-capitalization-weighted stock index of 50 leading blue-chip companies in the Eurozone
FTSE EPRANAREIT Global Real Estate Index Series The FTSE EPRANAREIT Global Real Estate Index Series is designed to represent general trends in eligible real estate equities worldwide
Hedge Fund Barometer The Hedge Fund Barometer is a proprietary Credit Suisse scoring tool that measures market conditions for hedge fund strategies It comprises four components liquidity volatility systemic risks and business cycle
Japan Topix TOPIX also known as the Tokyo Stock Price Index tracks all large Japanese companies listed in the stock exchanges first section The index calculation excludes temporary issues and preferred stocks
JPM EM hard curr USD The Emerging Market Bond Index Plus tracks the total return of hard-currency sovereign bonds across the most liquid emerging markets The index encompasses US-denominated Brady bonds (dollar-denominated bonds issued by Latin American countries) loans and Eurobonds
JPM EM local curr hedg USD The JPMorgan Government Bond Index tracks local currency bonds issued by emerging market governments across the most accessible markets for international investors
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 19
MSCI AC AsiaPacific The MSCI All Country Asia Pacific Index captures large and mid cap representation across 5 developed market countries and 8 emerging markets countries in the Asia Pacific region With 1000 constituents the index covers approximately 85 of the free float-adjusted market capitalization in each country
MSCI AC World The MSCI All Country World Index captures large and mid cap representation across 23 developed markets and 23 emerging market countries With roughly 2480 constituents the index covers around 85 of the global investable equity opportunity set
MSCI Emerging Markets MSCI Emerging Markets is a free-float-weighted Index designed to measure equity market performance in global emerging markets The index is developed and calculated by Morgan Stanley Capital International
MSCI EMU The MSCI EMU Index (European Economic and Monetary Union) captures large and mid cap representation across the 10 Developed Markets countries in the EMU With 237 constituents the index covers approximately 85 of the free float-adjusted market capitalization of the EMU
MSCI Europe The MSCI Europe Index captures large and mid cap representation across 15 developed markets countries in Europe With 442 constituents the index covers approximately 85 of the free float-adjusted market capitalization across the European developed markets equity universe
MSCI UK The MSCI United Kingdom Index is designed to measure the performance of the large and mid cap segments of the UK market With 111 constituents the index covers approximately 85 of the free float-adjusted market capitalization in the UK
MSCI World MSCI World is an index of global equity markets developed and calculated by Morgan Stanley Capital International Calculations are based on closing prices with dividends reinvested
OECD Composite Leading Indicators OECD Composite Leading Indicators (CLIs) are designed to provide early signals of turning points in business cycles with components that measure early stages of production respond to changes in economic activity and are sensitive to expectations of future activity
Purchasing Managers Indices Purchasing Managers Indices (PMIs) are economic indicators derived from monthly surveys of private-sector companies The two principal producers of PMIs are Markit Group which conducts PMIs for over 30 countries worldwide and the Institute for Supply Management (ISM) which conducts PMIs for the United States The indices include additional sub-indices for manufac-turing surveys such as new orders employment exports stocks of raw materials and finished goods prices of inputs and finished goods and services
Russell 1000 Growth Index The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe based on 1000 large-cap companies with higher price-to-book ratios and higher forecast growth values
Russell 1000 Index The Russell 1000 Index is a stock market index that represents the highest-ranking 1000 stocks in the Russell 3000 Index (encompassing the 3000 largest US-traded stocks with the underlying companies all incorporated in the USA) and representing about 90 of the total market capitalization of that index The Russell 1000 Index has a weighted average market capitalization of USD 81 billion and the median market capitalization is approximately USD 46 billion
Russell 1000 Value Index The Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe based on 1000 large-cap companies with lower price-to-book ratios and lower expected growth values
Switzerland SMI The Swiss Market Index is made up of 20 of the largest companies listed of the Swiss Performance Index universe It represents 85 of the free-float capitalization of the Swiss equity market As a price index the SMI is not adjusted for dividends
UK FTSE 100 FTSE 100 is a market-capitalization-weighted stock index that represents 100 of the most highly capitalized companies traded on the London Stock exchange The equities have an investibility weighting in the index calculation
US SampP 500 Standard and Poors 500 is a capitalization-weighted stock index representing all major industries in the USA which measures the performance of the domestic economy through changes in the aggregate market value
Abbreviations frequently used in reports
Abb Description Abb Description
3612 MMA 3612 month moving average IMF International Monetary Fund
AI Alternative investments LatAm Latin America
APAC Asia Pacific Libor London interbank offered rate
bbl barrel m bd Million barrels per day
BI Bank Indonesia M1 A measure of the money supply that includes all physical money such as coins and currency as well as demand deposits checking accounts and negotiable order of withdrawal accounts
BoC Bank of Canada M2 A measure of money supply that includes cash and checking deposits (M1) as well as savings deposits money market mutual funds and other time deposits
BoE Bank of England M3 A measure of money supply that includes M2 as well as large time deposits institutional money market funds short-term re-purchase agreements and other larger liquid assets
BoJ Bank of Japan MampA Mergers and acquisitions
bp Basis points MAS Monetary Authority of Singapore
BRIC Brazil Russia China India MLP Master Limited Partnership
CAGR Compound annual growth rate MoM Month-on-month
CBOE Chicago Board Options Exchange MPC Monetary Policy Committee
CFO Cash from operations OAS Option-adjusted spread
CFROI Cash flow return on investment OECD Organisation for Economic Co-operation and Development
DCF Discounted cash flow OIS Overnight indexed swap
DM Developed Market OPEC Organization of Petroleum Exporting Countries
DMs Developed Markets PB Price-to-book value
EBITDA Earnings before interest taxes depreciation and amortization PE Price-earnings ratio
ECB European Central Bank PBoC Peoples Bank of China
EEMEA Eastern Europe Middle East and Africa PEG PE ratio divided by growth in EPS
EM Emerging Market PMI Purchasing Managers Index
EMEA Europe Middle East and Africa PPP Purchasing power parity
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 20
EMs Emerging Markets QE Quantitative easing
EMU European Monetary Union QoQ Quarter-on-quarter
EPS Earnings per share rhs right-hand side (for charts)
ETF Exchange traded funds RBA Reserve Bank of Australia
EV Enterprise value RBI Reserve Bank of India
FCF Free cash flow RBNZ Reserve Bank of New Zealand
Fed US Federal Reserve REIT Real estate investment trust
FFO Funds from operations ROE Return on equity
FOMC Federal Open Market Committee ROIC Return on invested capital
FX Foreign exchange RRR Reserve requirement ratio
G10 Group of Ten SAA Strategic asset allocation
G3 Group of Three SDR Special drawing rights
GDP Gross domestic product SNB Swiss National Bank
GPIF Government Pension Investment Fund TAA Tactical asset allocation
HC Hard currency TWI Trade-Weighted Index
HY High yield VIX Volatility Index
IBD Interest-bearing debt WTI West Texas Intermediate
IC Credit Suisse Investment Committee YoY Year-on-year
IG Investment grade YTD Year-to-date
ILB Inflation-linked bond Personal Consumption An indicator of the average increase in prices for all domestic Expenditure (PCE defla- personal consumption tor)
Currency codes frequently used in reports
Code Currency Code Currency
ARS Argentine peso KRW South Korean won
AUD Australian dollar MXN Mexican peso
BRL Brazilian real MYR Malaysian ringgit
CAD Canadian dollar NOK Norwegian krone
CHF Swiss franc NZD New Zealand dollar
CLP Chilean peso PEN Peruvian nuevo sol
CNY Chinese yuan PHP Philippine peso
COP Colombian peso PLN Polish złoty
CZK Czech koruna RUB Russian ruble
EUR Euro SEK Swedish kronakronor
GBP Pound sterling SGD Singapore dollar
HKD Hong Kong dollar THB Thai baht
HUF Hungarian forint TRY Turkish lira
IDR Indonesian rupiah TWD New Taiwan dollar
ILS Israeli new shekel USD United States dollar
INR Indian rupee ZAR South African rand
JPY Japanese yen
Important information on derivatives
Pricing Option premiums and prices mentioned are indicative only Option premiums and prices can be subject to very rapid changes The prices and premiums mentioned are as of the time indicated in the text and might have changed substantially in the meantime
Risks Derivatives are complex instruments and are intended for sale only to investors who are capable of understanding and assuming all the risks involved Investors must be aware that adding option positions to an existing portfolio may change the characteristics and behavior of that portfolio substantially A portfoliorsquos sensitivity to certain market moves can be heavily impacted by the leverage effect of options
Buying calls Investors who buy call options risk the loss of the entire premium paid if the underlying security trades below the strike price at expiration
Buying puts Investors who buy put options risk loss of the entire premium paid if the underlying security finishes above the strike price at expiration
Selling calls Investors who sell calls commit themselves to sell the underlying for the strike price even if the market price of the underlying is substantially higher Investors who sell covered calls (own the underlying security and sell a call) risk limiting their upside to the strike price plus the upfront premium received and may have their security called away if the security price exceeds the strike price of the short call Additionally the investor has full downside participation that is only partially offset by the premium received upfront If investors are forced to sell the underlying they might be subject to taxing Investors shorting naked calls (ie selling calls but without holding the underlying security) risk unlimited losses of security price less strike price
Selling puts Put sellers commit to buying the underlying security at the strike price in the event the security falls below the strike price The maximum loss is the full strike price less the premium received for selling the put
Buying call spreads Investors who buy call spreads (buy a call and sell a call with a higher strike) risk the loss of the entire premium paid if the underlying trades below the lower strike price at expiration The maximum gain from buying call spreads is the difference between the strike prices less the upfront premium paid
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 21
Selling naked call spreads Selling naked call spreads (sell a call and buy a farther out-of-the-money call with no underlying security position) Investors risk a maximum loss of the difference between the long call strike and the short call strike less the upfront premium taken in if the underlying security finishes above the long call strike at expiration The maximum gain is the upfront premium taken in if the security finishes below the short call strike at expiration
Buying put spreads Investors who buy put spreads (buy a put and sell a put with a lower strike price) also have a maximum loss of the upfront premium paid The maximum gain from buying put spreads is the difference between the strike prices less the upfront premium paid
Buying strangles Buying strangles (buy put and buy call) The maximum loss is the entire premium paid for both options if the underlying trades between the put strike and the call strike at expiration
Selling strangles or straddles Investors who are long a security and short a strangle or straddle risk capping their upside in the security to the strike price of the call that is sold plus the upfront premium received Additionally if the security trades below the strike price of the short put investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short put and will also experience losses in the security position if they owns shares The maximum potential loss is the full value of the strike price (less the value of the premium received) plus losses on the long security position Investors who are short naked strangles or straddles have unlimited potential loss since if the security trades above the call strike price investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short call In addition they are obligated to buy the security at the put strike price (less upfront premium received) if the security fin-ishes below the put strike price at expiration
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 22
Important information on mutual funds Fees and charges etc Different types of fees and commissions (subscription fee amount which must be retained in trust assets repurchase fee etc) are charged when investment trustsfunds are purchased and sold In addition apart from these fees and commissions trust and management fees and other fees (audit fee trust administrative charges carried interest etc) are charged and borne by you through your trust asset Fees and commissions borne by you will be a sum of these amounts Such fees and commissions vary depending on the investment trustfund and depending on the investment status and therefore we cannot provide specific amounts or calculation methods
For detailed information on fees and commissions etc of each re-spective investment trustfund please refer to the pre-contract documents (prospectus and other supplementary documents)
Important information on dividends bull Dividends are different to interest on deposits and are paid from the net asset value of investment trustsfunds Therefore when dividends are paid the base value (net asset value per unit) will decrease by an amount equivalent to the amount paid
bull Dividends may be paid exceeding the profit earned during the calculation period (trading profit including profits of dividends etc after expenses) In this case the base value (net asset value per unit) on the settlement date in this period will decrease compared to that on the settlement date in the previous period Also the level of dividends does not always reflect the rate of return for the investment trustfund during the calculation period
bull A part or all of dividends may be virtually equivalent to some repayment of the principal depending on the purchase price of the investment trustfund by an investor The same can be applied to a case that an increase in the base value (net asset value per unit) is smaller than a dividend amount due to the investment status after purchase of the investment trustfund
Please refer to the prospectus for details
Explanation of major risks (description pursuant to Ar-ticle 37 (Regulation on Advertising etc) of the Financial Instruments and Exchange Act etc) The risks described below are a summary of some general risks of investment trustsfunds (risks which have an impact on net asset value) and do not cover all risks Please refer to the pre-trade documents (prospectus and other supplementary documents)
Price volatility risk Investment trustsfunds invest mainly in equities bonds and derivative products etc The value of the investment trustfund will go up or down due to increases or decreases in the prices of such investments Further the value of such investments will be impacted by political and economic factors the financial standing of an issuer market demand and supply interest rates and other factors
Foreign currency risk Investment trustsfunds which invest in equities or bonds etc denominated in foreign currencies entail a foreign currency risk and the base value (or net asset value) of investment trustsfunds may change depending on the currency exchange rate Even when you do not experience a loss of invest-ment principal when calculated in the base currency you may suffer a loss at conversion into Japanese yen due to fluctuations in exchange rates Fur-thermore investment trustsfunds which utilize currency trading among multiple currencies may incur costs due to such currency trading depending on the difference in short-term interest rates between the currencies and you may suffer a loss
Credit risk For investment trustsfunds which invest in equities or bonds etc the prices of these investments may increase and decrease due to changes in the business or financial standing of the issuer and other factors and you may suffer a loss
Risk pertaining to liquidity Where there is sudden high volume in a particular investment or when sudden changes in the external environment surrounding markets triggers a sudden downturn in a market or period of market turmoil etc investments may not be flexibly traded In such a case a decline in the price of the investment may impact the base value (or net asset value) of the investment trust result-ing in a loss Further the management company may decide to stop calcu-lation of net asset prices or suspend sell or redemption claims
In addition for certain types of investment trustfund there is a risk that particular investments may be designated to a separate account (or side pocket) due to a lack of liquidity When a separate account is utilized by in-vestment trustsfunds restrictions may apply as to when such investments can be liquidated through a sell or redemption claim and there may be a re-striction in the timing or form of redemption claim permissible In particular for Fund of Fund investments when an investment trustfund makes an in-vestment without time limit in another fund the investment trustfund may be influenced by investment results in the other funds
Risk associated with an outflow of money received from sales orders When there is a large volume of sale orders in a short period of time the investment trustfund may be forced to sell structured securities at a lower rate than the prevailing market price to refund monies to investors and as a result you may suffer a loss Also alternative investment trustsfunds gen-erally have a limitation in selling or cashing out the investment compared to traditional investment trustsfunds Many alternative investment trustsfunds only accept a sell or redemption order on a monthly or quarterly basis and therefore you may not be able to rapidly exit the investment in for example times of economic uncertainty
Redemption risk Investment trustsfunds may become subject to mandatory redemption due to a certain reason For details please refer to the pre-trade documents (prospectus and other supplementary documents) before subscription
Concentration risk Investment trustsfunds which invest in a certain investment product or similar investment product group may significantly decrease in value (net asset value) under severe market circumstances
Country risk When changes in political economic and social conditions in investment destination countries and regions cause a dislocation in financial and security markets security prices may significantly change Also investments in emerging markets involve unique risks including small market size and trade volume political and social uncertainties undeveloped market infrastructure such as a clearing system undeveloped information disclosure system and legal system by supervising authorities large fluctuations in exchange rates restrictions on currency remittance to foreign countries and other factors and therefore may have larger price fluctuations compared to investments in major developed markets
Important information on non-Japanese stocks Please refer to the issuer information when you purchase non-Japanese stocks
Disclaimer This material is published solely for information purposes and is intended for the recipientrsquos sole use Credit Suisse does not represent or warrant its ac-curacy or completeness The material is not directly or indirectly intended for any investment solicitation and does not constitute an invitation or offer to conclude a transaction contract for financial instruments etc Credit Suisse accepts no liability for loss arising from the use of the information in this material It is recommended that you consult with the third party professional advisors as to legal or tax issues etc This material should not be reproduced or quoted without the prior express written consent of Credit Suisse The information and opinions expressed in this material were produced by Private Banking Division at Credit Suisse as of the date of writing and are subject to change without notice Views expressed in respect of particular investment products in this material may be different from or inconsistent with the ob-
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 23
servations and views of other divisions besides Private Banking due to the differences in evaluation criteria This material is solely distributed in Japan by Credit Suisse Securities (Japan) Limited Credit Suisse Securities (Japan) Limited will not distribute or forward it outside Japan
You may incur a loss as a result of fluctuations in stock prices if you invest in stocks In relation to foreign stocks you may incur a loss in such stocks due to foreign exchange rate fluctuations etc The market value of bonds is affected by interest rate fluctuations or changes in the financial standing of any issuer etc as such you may incur a loss if you sell such bonds before they are redeemed In relation to foreign bonds you may incur a loss in such bonds due to foreign exchange rate fluctuations etc The net asset value of mutual funds can fall as well as rise due to price changes of underlying stocks bonds etc and foreign exchange rate fluctuations and this may cause you to incur a loss
Structured securities and derivatives are complex instruments 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 of any structured security or transaction may be affected by changes in financial market conditions reference indices volatility and the credit quality of any issuer or reference issuer
Furthermore there are structured securities on which you may incur a loss since the redemption amounts are linked with fluctuations in reference indices etc There are also derivatives on which potential losses may exceed the amount of the initial investment Commission rates for any transactions will be as per the rates agreed between Credit Suisse and you For transactions conducted on a principal to principal basis between Credit Suisse and you the purchase or sale price will be the total consideration Transactions con-
ducted on a principal to principal basis including over the counter derivatives transactions will be quoted as a purchasebid price or selloffer price and for which a difference or spread may exist Charges in relation to transactions will be agreed prior to dealing as per our requirements under the Financial Instruments and Exchange Law
By purchasing financial instruments etc you may incur a loss or a loss in excess of the principal as a result of fluctuations in market prices or other financial indices etc Please read carefully the Pre-Contract Documentation provided for an explanation of associated risks and commissions etc of individual financial instruments etc prior to purchase Please contact your Relationship Manager if you have any questions
UNITED STATES NEITHER THIS REPORT NOR ANY COPY THEREOF MAY BE SENT TAKEN INTO OR DISTRIBUTED IN THE UNITED STATES OR TO ANY US PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE US SECURITIES ACT OF 1933 AS AMENDED)
Credit Suisse Securities (Japan) Limited Financial Instruments Dealer Di-rector-General of Kanto Local Finance Bureau (Kinsho) No 66 a member of Japan Securities Dealers Association Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association
Copyright copy 2021 Credit Suisse Group AG andor its affiliates All rights reserved
21C013A_IS_J
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 24
Imprint
Publisher Credit Suisse Private Banking amp Wealth Management Investment Solutions amp Products
Information about other Investment Solutions amp Products publications Internet httpsinvestmentcredit-suissecom
Intranet (for employees only) httpsisrcsintranet
Subscription (clients) Please contact your customer advisor to subscribe to this publication
Subscription (internal) For information on subscriptions please visit httpisrcsintranetsubscriptions
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 25
Global investment strategy
Retain preference for EM equities Continued fiscal and monetary policy support and an easing of the pandemic should help Western economies see strong growth in the second half of the year
We retain a cyclical tilt in portfolio allocations through overweight positions in equities with a preference for EM equities and commodities
Philipp Lisibach Chief Global Strategist
The Credit Suisse Investment Committee (IC) has reduced emerging market hard currency (EM HC) sovereign bonds to strategic allocations and changed the return outlook for devel-oped market investment grade (IG) bonds from attractive to neutral Equity allocations are kept at overweight with a continued preference for emerging markets The BCOM also remains at overweight
Reflation expected to support cyclical assets Even though the pandemic continues to weigh on economic activity falling infection rates and hospitalizations alongside vaccine rollouts should allow economies to reopen In combi-nation with continued fiscal and monetary policy support Western economies are likely to see exceptionally strong growth in the second half of 2021 The USA is currently benefiting from a second relief package which is likely to be followed by a third one soon adding fuel to the expected concerted recovery
As such the IC keeps a cyclical bias in portfolio allocations expressed by overweights in equities and the broad commod-ity index (BCOM) In equities we continue to express a pref-erence for emerging markets specifically Chinese equities which show strong price momentum having outperformed global equities since the start of the year Although China has initiated policy-tightening measures we think it will take these steps in a controlled manner without risking denting market sentiment
Risk of inflation scare mitigated by central bank com-mitments Besides the risk that new virus strains with potential resistance to vaccines may fuel market concerns markets could start consolidating in coming months should a rise in US inflation
due to base effects lead to an inflation scare Although we think that such an inflation increase will be temporary uncer-tainty about the outlook for the second half is elevated due to the expected strong growth and likely supply-side bottle-necks as economies reopen To mitigate this risk the contin-ued commitment by central banks above all the US Federal Reserve (Fed) to keep financial conditions easy will be key Recent comments by Fed Chair Powell stressing patience and suggesting that the economy is far from overheating give us confidence that this key market support will stay in place For real assets such as equities and commodities this should continue to prove beneficial
Tight credit spreads Although the anchoring of treasury yields for shorter maturities via central banksrsquo rate guidance should prevent a sudden surge in longer-dated yields we expect them to grind higher as growth momentum builds Thus performance is expected to continue to suffer and the IC is keeping government bonds at underweight Due to tight IG credit spreads the IC has reduced the return outlook for IG from attractive to neutral For EM HC sovereign bonds we take profit on our successful overweight and cut portfolio allocations back to strategic levels as spreads have eroded Investors should find more value in EM HC corporate as well as selected EM local sovereign bonds Despite some USD consolidation at the start of this year the USD is likely to continue its weakening trend against other major currencies in coming months
Watch a video featuring the highlights of the Credit Suisse investment strategy wwwcredit-suissecomciofilm
(15022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 10
Special topic
ESG Integrated Investing according to environmental social and governance (ESG) criteria is in the process of becoming mainstream
Combining the House View with ESG convictions ldquoESG Integratedrdquo is a set of best ideas for investors to gradually transition to multi-asset portfolios that perform solidly both on traditional financial performance metrics and on ESG metrics ldquoESG Integratedrdquo is part of our Signature Convictions
Nannette Hechler-Faydherbe Chief Investment Officer ndash International Wealth Management
Jessie Gisiger Head of Credit Strategy and Investment Themes
Green transitions are at the heart of the fiscal spending and recovery plans put in place in response to the COVID-19 pandemic Against this backdrop strong regulatory momen-tum and fiscal ambitions in the USA Europe and China have only added to a global trend toward integrating ESG criteria at every level of economic activity
There is growing evidence that adhering to ESG criteria not only helps to mitigate our impact on climate change but also supports financial risk-reward for several reasons First be-sides increasing transparency and awareness ESG filters help keep in check the risk of heightened regulatory scrutiny that non-ESG-compliant business practices increasingly face Second ESG factors can impact financial business conditions such as the incurred cost of capital Focusing on good gover-nance and keeping an eye on regulatory risk are equally likely to be beneficial when considering default risk in the corporate bond market Third there are strong investment themes emerging from the policy support currently developing espe-cially in climate change to achieve net-zero carbon emissions by 2050
Signature Convictions ESG Integrated Combining key elements of the Credit Suisse House View with thematic priorities in ESG investing that emerge from these catalysts we have developed a set of best ideas (see table) that can help investors gradually transition their invest-ments toward multi-asset portfolios that perform solidly on both traditional financial performance metrics as well as ESG metrics
In fixed income ESG emerging market corporate bonds and ESG subordinated bonds offer investors an avenue to earn a yield pick-up but at a lower risk of credit spread widening than the broader index Empirical assessments have also shown that companies with higher ESG scores tend to have a lower probability of default Investors looking for an equiva-lent to money-market instruments may consider impact invest-ments which deliver low single-digit returns with limited vola-tility
In equities we highlight the Supertrends climate change and sustainable infrastructure as two key ESG-related themes that are focused on decarbonizing economic activity and are catalyzed by global regulatory momentum For investors looking for single-stock investments our Credit Suisse ESG Top 25 list includes stocks from our high conviction list that are in category 3 (ldquoESG awarerdquo) or category 4 (ldquoThematicrdquo) of our Credit Suisse ESG classification framework
Investors who would like to invest according to our preference for EM equities also have the option of doing so in an ESG-compliant manner through the MSCI Emerging Markets ESG Leaders Index That index has on average outperformed the MSCI Emerging Markets Index since 2008 This outperfor-mance can be explained by the MSCI Emerging Markets ESG Leaders Indexrsquos higher exposure to growth sectors and strong orientation to new economy sectors that benefit from powerful structural growth drivers Separately green real estate is likely to lead to higher occupancy rates and a lower probabil-ity of income loss resulting in a more stable income stream
For investors looking to alternative investments for further diversification impact private equity sustainable alpha hedge fund and carbon emission allowance futures are also interest-ing
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 11
Signature Convictions ESG Integrated
Source Credit Suisse
(16022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 12
Special topic
Bullish hopes in Chinarsquos Year ofthe Ox Our positive view on equities remains in place We express it through a preference for emerging market particularly Chinese equities
After strong gains so far this year we challenge the quality and longevity of Chinarsquos bull market and explain why we remain optimistic
John William Huia Woods CIO APAC
Just ahead of Chinese New Year Chinarsquos benchmark Shanghai Composite Index surged to new highs for the year Chinarsquos strong market gains are fueled by a rush of excess liquidity the likes of which we have not seen since 2015 But experienced investors will know that a rising tide can just as easily ndash and quickly ndash turn into an ebbing tide particularly when fundamentals become unsupportive
Red flags In fact red flags are not hard to find Possibly the most im-portant observation is that Chinarsquos growth momentum has passed its peak and will likely decelerate into 2021 A decel-erating economy does not necessarily hurt a bull market but it does not necessarily help it either
Equally important is the view that Chinarsquos ndash increasingly less dovish ndash authorities are unlikely to further stimulate the economy It has been widely observed that they remain vigilant and concerned toward the possible formation of price bubbles in real and financial assets including equity markets
Indeed the Peoplersquos Bank of Chinarsquos willingness in late January 2021 to withdraw rather than add CNY 570 bn of liquidity from interbank markets ahead of the Chinese New Year suggests that a clear inflection point has been reached with monetary policy now normalizing after two years of stimulus and easy money
Amid decelerating economic growth corporate revenues are under pressure meaning analyst earnings revisions are flat-lining and thus failing to keep pace with more vibrant emerging andor developing markets In absolute terms weaker earn-ings exert upward pressure on valuations Yet a liquidity-driven rally can still push valuations higher
Imbalance The liquidity-centric imbalance at the heart of Chinarsquos bull market leaves it exposed and vulnerable to correction in our opinion An environment of tightening monetary policy decel-erating growth and stretched valuations are generally not conducive to sustained price appreciation In fact in Chinarsquos case incrementally greater inflows of liquidity will be required to sustain existing price levels At least from an onshore per-spective the music will stop
Intriguingly attention is now turning to foreign investor inflows which hitherto have been muted But there are reasons why a rebound in sentiment might be expected including improving geopolitical sentiment with the new administration in the USA and expectation of CNY appreciation which should boost returns for USD investors Overall a reacceleration in flows could be a key factor in keeping Chinese markets supported
Sound diversification is key On balance at least for the next few months we remain overweight Chinese equities in a portfolio context Our funda-mental concerns are medium-term in nature while near-term risks ndash supported by liquidity ndash are tilted toward further price gains In line with our House View we emphasize the value of well-diversified exposure to EM equities overall
(15022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 13
Fixed income
EM HC corporate bonds preferred The ongoing reflationary path is going to support long-dated yields warranting a con-tinued cautious stance on government bonds
We reduce our allocation to EM HC sovereign bonds to benchmark weight We no longer see IG credit as attractive and prefer EM HC corporate bonds
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
Global benchmark yields have continued to trend higher in the last few weeks supported by reflationary expectations Despite the marketsrsquo repricing of more US fiscal stimulus the Federal Reserve (Fed) kept control of front-end rates expectations with the US yield curve further steepening as a result Going forward long-dated inflation expectations are still expected to be the main driver of nominal benchmark yields Both should moderately rise in tandem particularly in the USA With other developed regions following the same reflationary theme albeit with a lag we anticipate that global government bonds will remain an unattractive investment We therefore keep exposure below benchmark allocations in portfolios Furthermore we keep a relatively short duration stance in US Eurozone and Swiss bond markets and prefer US inflation-linked bonds over comparable nominal govern-ment bonds
IG credit no longer attractive prefer EM HC corporate bonds We no longer think that global investment grade (IG) credit offers attractive return potential While monetary policy re-mains supportive IG spreads are already at historical lows and no longer offer enough compensation against the further rise in benchmark yields we expect Global high yield (HY) credit market returns should remain attractive thanks to policy support and the economic recovery we project However we
see limited further spread compression potential in US HY and European HY from the current historical lows We believe emerging market hard currency (EM HC) corporate bonds are most attractive within credit with pro-cyclical emerging markets benefiting from the global growth rebound expected this year At the same time and due to their comparatively low benchmark duration EM HC corporate bonds are less sensitive to higher US government yields than global IG EM HC corporates on average provide similar credit fundamentals to developed market credit but offer more attractive spreads amid the current reflationary environment Also we see more opportunities in EM HC HY corporates particularly in Asia where spreads offer a premium of around 200 bp over US HY
EM HC sovereigns reduced to benchmark allocation EM HC sovereign bond valuations are currently tight with spreads not far off the lows reached after the great financial crisis Inflation has largely bottomed out due to base effects food and energy prices and there is limited scope for further monetary stimulus EM HC sovereign bond spreads have a high correlation with US Treasury yields With the latter still on the rise risks to EM HC sovereign bonds are increasing Positioning is at record highs and flows continue to acceler-ate This suggests that a further strong performance is less likely Given these considerations we have decided to reduce EM HC sovereign bonds to benchmark allocation in our portfolios (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 14
Equities
Remain constructive on globalequities We maintain our attractive return outlook for global equities with a preference for emerging markets UK Germany financials materials and health care
After a double-digit earnings decline in 2020 global earnings are set to recover sharply this year
Marc Haumlfliger Global Equity Strategist
We maintain our attractive return outlook for global equities on the back of supportive monetary conditions vaccine roll-outs growing stimulus prospects and our constructive outlook for economic and earnings growth While traditional valuation metrics remain elevated they look less stretched relative to other asset classes such as global treasury bonds The earnings recovery is key to our thesis of attractive returns for global equities as we do not expect further re-ratings (ie higher multiples) to drive equity markets going forward So far the Q4 earnings results underpin our view that companies have learned how to deal with the current circumstances given earnings results are mostly surpassing projections As a result of this strong showing global EPS growth rates (YoY) will likely be positive again for the Q4 2020 earnings season After an overall double-digit earnings decline in 2020 global earnings are set to recover sharply this year ndash particularly in cyclical market segments Risks to our constructive view on equities come from COVID-19 concerns (mutation potential vaccine disappointments) disappointing fiscal stimulus or earlier-than-expected comments about a withdrawal of mon-etary stimulus
In a portfolio context we keep our overweight in emerging market (EM) equities as we remain bearish on the USD ex-pect higher commodity prices and see the re-opening environ-ment as positive for EM equities We expect cyclical segments that lagged the broader equity benchmark in 2020 ndash such as the UK Germany and financials ndash to catch up amid the im-proved economic outlook and rising inflation expectations
Latest view changes In developed market equities we turn neutral from outperform on Hong Kong equities as a result of their strong performance in recent weeks and increasing macro headwinds In EM eq-uities we now expect South African equities to outperform driven by attractive valuation a strong earnings picture and an accommodative central bank We no longer expect Indian equities to underperform and turn neutral following the gov-ernmentrsquos pro-growth budget announcement an improved macroeconomic outlook and earnings estimates being revised higher at a faster pace than peers
Earnings expected to recover in 2021
Last data point 09022020 Historical performance indications and financial market
scenarios are not reliable indicators of current or future performance Source Factset
Estimates Credit Suisse
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 15
Alternative investments
Still positive on commodities Commodity performance has been strong year-to-date A near-term pause is possible but we retain a positive view and prefer diversified exposure with a cyclical bias
Despite recent resilience we expect listed real estate to lag equities In hedge funds we highlight opportunistic long-short discretionary and EM macro managers as well as private credit
Jelena Kucenko Head of Alternative Investments
Stefan Graber Head of Commodity Strategy
Hedge funds Be selective Hedge funds were flat in January as short covering activity at month-end erased initial gains Fundamental long-short and macro funds suffered the most while relative value and event driven were more resilient Our Trading Conditions Barometer is in favorable territory Combined with regional and sector divergences arising from vaccine rollouts compli-ance with environmental social and governance criteria and record levels of capital-market activity this creates opportuni-ties for long-short managers We also highlight private credit strategies with a focus on consumer loans and mid-market companies which should benefit from resilient household fi-nances and a post-pandemic recovery Discretionary and emerging market (EM) macro managers are preferred in case of market setbacks
Commodities Providing cyclicality and inflation hedge Commodities started 2021 on a strong note focusing on positive growth expectations instead of near-term COVID-19 concerns A near-term pause is possible as the latest gains came ahead of an anticipated reacceleration in industrial ac-tivity That said improved bottom-up fundamentals have flipped aggregate curves into backwardation translating into positive roll yields which may attract additional investor inter-est Commodities also provide a hedge should inflation sur-prise to the upside We retain our positive view on the asset class and favor diversified exposure with a cyclical tilt (oil energy) For oil the March OPEC+ meeting is the next event
risk and a potential source of volatility as the group will likely discuss supply hikes We still think that gold offers diversifica-tion and some upside but the bull run could be maturing as yield curves have started to steepen We thus tone down our optimism on the metal
Real estate Expected to underperform equities Listed real estate slightly outperformed global equities in January thanks to strong earnings results in logistics and a rebound in oversold retail companies as short sellers covered their positions But we believe that further upside potential for the sector is limited as the impact of lockdowns is not yet reflected in landlordsrsquo share prices in our view Additionally valuations in structurally resilient sectors such as logistics and data centers already reflect fundamentals This and the prospect of higher long-term yields and an increased risk of US regulatory headwinds reinforce our negative sector view
Private equity Backdrop still positive Robust investment activity at the end of last year pushed pri-vate equity deal values higher but the asset class still offers better priced opportunities than public markets Dry powder ndash committed but uninvested capital ndash is at a record of over USD 2 trn with subdued fundraising activity expected to re-bound as investors increase commitments in 2021 according to data provider Preqin The expected economic rebound is supportive for the asset class but rising long-term interest rates pose risk to financing costs We highlight strategies offering high growth with limited leverage (venture capital growth capital) and secondary funds which can exploit market opportunities tactically generating excess returns over time
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 16
Foreign exchange
Keep favoring cyclical currencies We maintain a short USD bias and prefer commodity and cyclical currencies such as the EUR GBP or SEK
Within our positive emerging market stance we particularly like the CNY KRW BRL and RUB
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
The USD was broadly flat against other major currencies over the last month Investorsrsquo focus on US fiscal stimulus and an expected rise in US inflation allowed for some normalization in previously large USD short positions While the repricing of near-term growth expectations also in light of a more rapid US vaccination campaign created temporary USD resilience we think this improvement is likely partly reflected in the USD already We maintain that as the Federal Reserve (Fed) keeps short-term rates close to zero for longer there is little room for sustained gains in the USD Moreover US fiscal stimulus will not only deteriorate fiscal balances but also deepen the current account deficit This will also benefit the global econ-omy through improved global trade and sentiment which should weigh on the USD Uncertainties relating to new COVID-19 variants and extended USD short positioning re-main a risk in the short term
Constructive on cyclical currencies A slow start to vaccine rollouts and renewed political risks in Italy somewhat dented sentiment toward the EUR in early February Even so the single currency remained stable vs the USD The Eurozone is facing a delayed recovery but this is consensus already and likely temporary in nature With political risks now subsiding the EU recovery fund operational in the next quarter and the global growth recovery benefitting the export-oriented Eurozone we think EURUSD can gain some further ground and target 124 in 3M Elsewhere in Europe we also remain positive on the SEK and the GBP
vs the USD With global reflation set to continue and com-modity prices likely to remain supported through the ongoing rebalancing we still favor commodity currencies in particular the NZD CAD and NOK
BRL RUB CNY and KRW preferred Emerging market (EM) currencies were broadly range-bound on an index level over the last month but with significant re-turn dispersion across currencies The main arguments sup-porting our attractive view on EM FX remain in place We continue to see further scope for a broad appreciation of EM FX versus the USD Even though the EM economic recovery has peaked economic activity still looks solid relative to de-veloped markets External positions remain in good shape and non-resident flows are still supportive In addition with inflation bottoming and food prices increasing scope for dovish EM central bank surprises seems to be exhausted This should be favorable for EM carry versus the USD
The RUB BRL CNY and KRW remain our preferred curren-cies in EM Both the RUB and BRL are cheaply valued Addi-tionally the RUB should profit from attractive risk-adjusted carry and the BRL from more hawkish central bank expecta-tions In Asia we remain positive on the CNY and KRW and neutral on the other Asian FX We lower our 3M USDCNY target to 635 but keep our 12M target at 625 Our USDKRW targets remain unchanged at 1060 and 1010 in 3M and 12M respectively We retain a mild downward bias on the other USDAsia pairs expecting broad USD weak-ness (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 17
Forecasts
At a glance More information on the forecasts and estimates is available Credit Selected indices on request Past performance is not an indicator of future
Yield Spread Duration 3M TR 12M TR fore-performance Performance can be affected by commissions () (bp) (years) forecast cast fees or other charges as well as exchange rate fluctuations BC Global Aggregate 091 33 731 -010 010
BC Global Treasuries 058 9 862 -030 -050
BC Global IG Corp 141 94 735 033 130 Central bank rate10-year government bonds BC Global HY Corp 429 378 416 062 247
CB rate 10Y JPM EMBI Global Di- 480 344 764 032 126 yield versified HC
in Spot 3M 12M Spot 3M 12M
CHF -075 -075 -075 -026 -030 -030 BC = Barclays Capital IG= Investment Grade JPM = JP Morgan (EMBI+) Index data as of 1522021 Forecast as on 1522021
EUR -050 -050 -050 -035 -030 -030 These forecasts are no reliable indicators of future performance Source Bloomberg
USD 013 000-025 000-025 130 140 150 Credit Suisse GBP 010 010 010 062 050 060
AUD 010 010 010 139 130 140
JPY -010 -010 -010 010 010 010 Foreign exchange
Spot 3M 12M Spot rates are closing prices as of 1622021 Forecast date 1122021 These
EURUSD 121 124 125 forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC USDCHF 089 087 088
EURCHF 108 108 110
USDJPY 10594 10200 10000
Equities EURGBP 087 087 086
GBPUSD 139 143 145 Index Spot PE Div y 3M 12M () AUDUSD 078 078 079
MSCI AC World 1679 202 22 1690 1790 USDCAD 126 123 120
US SampP 500 3933 234 21 3950 4150 EURSEK 1004 1010 1020
Eurostoxx 50 3726 181 26 3700 3850 EURNOK 1016 1020 1020
UK FTSE 100 6749 143 43 6700 7000 EURPLN 449 457 459
Japan Topix 1965 185 21 1940 1970 USDCNY 646 635 625
Australia SampPASX 6917 207 38 6900 7150 USDSGD 132 131 128
200 USDKRW 109898 106000 101000
Switzerland SMI 10908 186 28 10950 11400 USDINR 7264 7270 7200
MSCI Emerging Mar- 190621 166 22 194000 207000 USDBRL 538 525 530 kets USDMXN 1994 2050 2150
Prices as of 1622021 Forecast as on 1122021 Gross return (incl dividends) Spot rates are as of 1722021 These forecasts are no reliable indicators of future performance Source Bloomberg These forecasts are no reliable indicators of future performance Source Bloomberg Datastream Credit SuisseIDC Credit SuisseIDC
Commodities Real GDP growth and inflation Spot 3M 12M GDP Inflation
Gold (USDoz) 1793 1900 2000 growth
Silver (USDoz) 273 27 30 in 2020 2021 2022 2020 2021 2022
Platinum (USDoz) 12624 1300 1250 CH -32 35 20 -07 03 02
Palladium (USDoz) 2390 2400 2500 EMU -72 50 42 03 06 10
Copper (USDton) 8416 8300 7900 USA -35 57 35 12 20 21
WTI Crude Oil (USDbbl) 600 60 60 UK -100 53 75 09 14 18
Bloomberg Commodity index 1815 181 186 Australia -20 35 32 08 15 15
Japan -49 17 19 -02 01 03
Spot rates are as of 1722021 forecast as on 1122021 China 23 71 52 25 11 17 These forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC Last forecast update 10022021
These forecasts are no reliable indicators of future performance Source Bloomberg Credit Suisse
(17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 18
Glossary
Risk warnings
Emerging markets Emerging markets are located in countries that possess one or more of the following characteristics a certain degree of political instability relatively unpredictable financial markets and economic growth patterns a financial market that is still at the development stage or a weak economy Emerging market investments usually result in higher risks as a result of political economic credit exchange rate market liquidity legal settlement market shareholder and creditor risks
Hedge funds Regardless of structure hedge funds are not limited to any particular investment discipline or trading strategy and seek to profit in all kinds of markets by using leverage derivative instruments and speculative investment strategies that may increase the risk of investment loss
Commodity investments Commodity transactions carry a high degree of risk and may not be suitable for many private investors The extent of loss due to market movements can be substantial or even result in a total loss
Real estate Investors in real estate are exposed to liquidity foreign currency and other risks including cyclical risk rental and local market risk as well as environmental risk and changes to the legal situation
Currency risks Investments in foreign currencies involve the additional risk that the foreign currency might lose value against the investorrsquos reference currency
Equity risk Equities are subject to market forces and hence fluctuations in value which are not entirely predictable
Market risk Financial markets rise and fall based on economic conditions inflationary pressures world news and business-specific reports While trends may be detected over time it can be difficult to predict the direction of the market and individual stocks This variability puts stock investments at risk of losing value
High Yield bond risk High Yield Bonds are typically rated below investment grade or are unrated and as such are often subject to a higher risk of issuer default
Perpetual Bond risk Perpetual Bonds have no maturity date and therefore the Interest pay-out depends on the viability of the issuer in the very long term
Subordinated Bond risk In case of liquidation of the issuer investors can only get back the principal after other senior creditors are paid
Risk of Bonds with variable deferral of interest terms Investors would face uncertainty over the amount and time of the interest payments to be received
Callable bond risk Investors face reinvestment risk when the issuer exercises its right to redeem the bond before it matures
Risk of Bonds with extendable maturity date Investors would not have a definite schedule of principal repayment
Convertible or exchangeable bond risk Investors are subject to both equity and bond investment risk
Cocos risk The bond may be written-off fully or partially or converted to common stock on the occurrence of a trigger event
Explanation of indices frequently used in reports
Index Comment
Australia SampPASX 200 SampPASX 200 is an Australian market-capitalization-weighted and float-adjusted stock index calculated by Standard and Poors
BC High Yield Corp USD The US Corporate High Yield Index measures USD-denominated non-investment grade fixed-rate and taxable corporate bonds The index is calculated by Barclays
BC High Yield Pan EUR The Euro Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate EUR The US Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate USD The IG Corporate Index tracks the fixed-rate investment-grade dollar-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
Canada SampPTSX comp The SampPTSX composite index is the Canadian equivalent of the SampP 500 Index in the USA The index contains the largest stocks traded on the Toronto Stock Exchange
Consumer Confidence Indices Consumer Confidence Indices (CCIs) are based on surveys of consumers spending intentions and economic situations as well as their concerns and expectations for the immediate future
CS Hedge Fund Index The Credit Suisse Hedge Fund Index is compiled by Credit Suisse Hedge Index LLC It is an asset-weighted hedge fund index and includes only funds as opposed to separate accounts The index reflects performance net of all hedge fund component performance fees and expenses
CS LSI ex govt CHF The Liquid Swiss Index ex govt CHF is a market-capitalized bond index representing the most liquid and tradable portion of the Swiss bond market excluding Swiss government bonds The index is calculated by Credit Suisse
DAX The German Stock Index stock represents 30 of the largest and most liquid German companies that trade on the Frankfurt Exchange
DXY A measure of the value of the US dollar relative to the majority of its most important trading partners The US Dollar Index is similar to other trade-weighted indices which also use the exchange rates from the same major currencies
Eurostoxx 50 Eurostoxx 50 is a market-capitalization-weighted stock index of 50 leading blue-chip companies in the Eurozone
FTSE EPRANAREIT Global Real Estate Index Series The FTSE EPRANAREIT Global Real Estate Index Series is designed to represent general trends in eligible real estate equities worldwide
Hedge Fund Barometer The Hedge Fund Barometer is a proprietary Credit Suisse scoring tool that measures market conditions for hedge fund strategies It comprises four components liquidity volatility systemic risks and business cycle
Japan Topix TOPIX also known as the Tokyo Stock Price Index tracks all large Japanese companies listed in the stock exchanges first section The index calculation excludes temporary issues and preferred stocks
JPM EM hard curr USD The Emerging Market Bond Index Plus tracks the total return of hard-currency sovereign bonds across the most liquid emerging markets The index encompasses US-denominated Brady bonds (dollar-denominated bonds issued by Latin American countries) loans and Eurobonds
JPM EM local curr hedg USD The JPMorgan Government Bond Index tracks local currency bonds issued by emerging market governments across the most accessible markets for international investors
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 19
MSCI AC AsiaPacific The MSCI All Country Asia Pacific Index captures large and mid cap representation across 5 developed market countries and 8 emerging markets countries in the Asia Pacific region With 1000 constituents the index covers approximately 85 of the free float-adjusted market capitalization in each country
MSCI AC World The MSCI All Country World Index captures large and mid cap representation across 23 developed markets and 23 emerging market countries With roughly 2480 constituents the index covers around 85 of the global investable equity opportunity set
MSCI Emerging Markets MSCI Emerging Markets is a free-float-weighted Index designed to measure equity market performance in global emerging markets The index is developed and calculated by Morgan Stanley Capital International
MSCI EMU The MSCI EMU Index (European Economic and Monetary Union) captures large and mid cap representation across the 10 Developed Markets countries in the EMU With 237 constituents the index covers approximately 85 of the free float-adjusted market capitalization of the EMU
MSCI Europe The MSCI Europe Index captures large and mid cap representation across 15 developed markets countries in Europe With 442 constituents the index covers approximately 85 of the free float-adjusted market capitalization across the European developed markets equity universe
MSCI UK The MSCI United Kingdom Index is designed to measure the performance of the large and mid cap segments of the UK market With 111 constituents the index covers approximately 85 of the free float-adjusted market capitalization in the UK
MSCI World MSCI World is an index of global equity markets developed and calculated by Morgan Stanley Capital International Calculations are based on closing prices with dividends reinvested
OECD Composite Leading Indicators OECD Composite Leading Indicators (CLIs) are designed to provide early signals of turning points in business cycles with components that measure early stages of production respond to changes in economic activity and are sensitive to expectations of future activity
Purchasing Managers Indices Purchasing Managers Indices (PMIs) are economic indicators derived from monthly surveys of private-sector companies The two principal producers of PMIs are Markit Group which conducts PMIs for over 30 countries worldwide and the Institute for Supply Management (ISM) which conducts PMIs for the United States The indices include additional sub-indices for manufac-turing surveys such as new orders employment exports stocks of raw materials and finished goods prices of inputs and finished goods and services
Russell 1000 Growth Index The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe based on 1000 large-cap companies with higher price-to-book ratios and higher forecast growth values
Russell 1000 Index The Russell 1000 Index is a stock market index that represents the highest-ranking 1000 stocks in the Russell 3000 Index (encompassing the 3000 largest US-traded stocks with the underlying companies all incorporated in the USA) and representing about 90 of the total market capitalization of that index The Russell 1000 Index has a weighted average market capitalization of USD 81 billion and the median market capitalization is approximately USD 46 billion
Russell 1000 Value Index The Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe based on 1000 large-cap companies with lower price-to-book ratios and lower expected growth values
Switzerland SMI The Swiss Market Index is made up of 20 of the largest companies listed of the Swiss Performance Index universe It represents 85 of the free-float capitalization of the Swiss equity market As a price index the SMI is not adjusted for dividends
UK FTSE 100 FTSE 100 is a market-capitalization-weighted stock index that represents 100 of the most highly capitalized companies traded on the London Stock exchange The equities have an investibility weighting in the index calculation
US SampP 500 Standard and Poors 500 is a capitalization-weighted stock index representing all major industries in the USA which measures the performance of the domestic economy through changes in the aggregate market value
Abbreviations frequently used in reports
Abb Description Abb Description
3612 MMA 3612 month moving average IMF International Monetary Fund
AI Alternative investments LatAm Latin America
APAC Asia Pacific Libor London interbank offered rate
bbl barrel m bd Million barrels per day
BI Bank Indonesia M1 A measure of the money supply that includes all physical money such as coins and currency as well as demand deposits checking accounts and negotiable order of withdrawal accounts
BoC Bank of Canada M2 A measure of money supply that includes cash and checking deposits (M1) as well as savings deposits money market mutual funds and other time deposits
BoE Bank of England M3 A measure of money supply that includes M2 as well as large time deposits institutional money market funds short-term re-purchase agreements and other larger liquid assets
BoJ Bank of Japan MampA Mergers and acquisitions
bp Basis points MAS Monetary Authority of Singapore
BRIC Brazil Russia China India MLP Master Limited Partnership
CAGR Compound annual growth rate MoM Month-on-month
CBOE Chicago Board Options Exchange MPC Monetary Policy Committee
CFO Cash from operations OAS Option-adjusted spread
CFROI Cash flow return on investment OECD Organisation for Economic Co-operation and Development
DCF Discounted cash flow OIS Overnight indexed swap
DM Developed Market OPEC Organization of Petroleum Exporting Countries
DMs Developed Markets PB Price-to-book value
EBITDA Earnings before interest taxes depreciation and amortization PE Price-earnings ratio
ECB European Central Bank PBoC Peoples Bank of China
EEMEA Eastern Europe Middle East and Africa PEG PE ratio divided by growth in EPS
EM Emerging Market PMI Purchasing Managers Index
EMEA Europe Middle East and Africa PPP Purchasing power parity
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 20
EMs Emerging Markets QE Quantitative easing
EMU European Monetary Union QoQ Quarter-on-quarter
EPS Earnings per share rhs right-hand side (for charts)
ETF Exchange traded funds RBA Reserve Bank of Australia
EV Enterprise value RBI Reserve Bank of India
FCF Free cash flow RBNZ Reserve Bank of New Zealand
Fed US Federal Reserve REIT Real estate investment trust
FFO Funds from operations ROE Return on equity
FOMC Federal Open Market Committee ROIC Return on invested capital
FX Foreign exchange RRR Reserve requirement ratio
G10 Group of Ten SAA Strategic asset allocation
G3 Group of Three SDR Special drawing rights
GDP Gross domestic product SNB Swiss National Bank
GPIF Government Pension Investment Fund TAA Tactical asset allocation
HC Hard currency TWI Trade-Weighted Index
HY High yield VIX Volatility Index
IBD Interest-bearing debt WTI West Texas Intermediate
IC Credit Suisse Investment Committee YoY Year-on-year
IG Investment grade YTD Year-to-date
ILB Inflation-linked bond Personal Consumption An indicator of the average increase in prices for all domestic Expenditure (PCE defla- personal consumption tor)
Currency codes frequently used in reports
Code Currency Code Currency
ARS Argentine peso KRW South Korean won
AUD Australian dollar MXN Mexican peso
BRL Brazilian real MYR Malaysian ringgit
CAD Canadian dollar NOK Norwegian krone
CHF Swiss franc NZD New Zealand dollar
CLP Chilean peso PEN Peruvian nuevo sol
CNY Chinese yuan PHP Philippine peso
COP Colombian peso PLN Polish złoty
CZK Czech koruna RUB Russian ruble
EUR Euro SEK Swedish kronakronor
GBP Pound sterling SGD Singapore dollar
HKD Hong Kong dollar THB Thai baht
HUF Hungarian forint TRY Turkish lira
IDR Indonesian rupiah TWD New Taiwan dollar
ILS Israeli new shekel USD United States dollar
INR Indian rupee ZAR South African rand
JPY Japanese yen
Important information on derivatives
Pricing Option premiums and prices mentioned are indicative only Option premiums and prices can be subject to very rapid changes The prices and premiums mentioned are as of the time indicated in the text and might have changed substantially in the meantime
Risks Derivatives are complex instruments and are intended for sale only to investors who are capable of understanding and assuming all the risks involved Investors must be aware that adding option positions to an existing portfolio may change the characteristics and behavior of that portfolio substantially A portfoliorsquos sensitivity to certain market moves can be heavily impacted by the leverage effect of options
Buying calls Investors who buy call options risk the loss of the entire premium paid if the underlying security trades below the strike price at expiration
Buying puts Investors who buy put options risk loss of the entire premium paid if the underlying security finishes above the strike price at expiration
Selling calls Investors who sell calls commit themselves to sell the underlying for the strike price even if the market price of the underlying is substantially higher Investors who sell covered calls (own the underlying security and sell a call) risk limiting their upside to the strike price plus the upfront premium received and may have their security called away if the security price exceeds the strike price of the short call Additionally the investor has full downside participation that is only partially offset by the premium received upfront If investors are forced to sell the underlying they might be subject to taxing Investors shorting naked calls (ie selling calls but without holding the underlying security) risk unlimited losses of security price less strike price
Selling puts Put sellers commit to buying the underlying security at the strike price in the event the security falls below the strike price The maximum loss is the full strike price less the premium received for selling the put
Buying call spreads Investors who buy call spreads (buy a call and sell a call with a higher strike) risk the loss of the entire premium paid if the underlying trades below the lower strike price at expiration The maximum gain from buying call spreads is the difference between the strike prices less the upfront premium paid
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 21
Selling naked call spreads Selling naked call spreads (sell a call and buy a farther out-of-the-money call with no underlying security position) Investors risk a maximum loss of the difference between the long call strike and the short call strike less the upfront premium taken in if the underlying security finishes above the long call strike at expiration The maximum gain is the upfront premium taken in if the security finishes below the short call strike at expiration
Buying put spreads Investors who buy put spreads (buy a put and sell a put with a lower strike price) also have a maximum loss of the upfront premium paid The maximum gain from buying put spreads is the difference between the strike prices less the upfront premium paid
Buying strangles Buying strangles (buy put and buy call) The maximum loss is the entire premium paid for both options if the underlying trades between the put strike and the call strike at expiration
Selling strangles or straddles Investors who are long a security and short a strangle or straddle risk capping their upside in the security to the strike price of the call that is sold plus the upfront premium received Additionally if the security trades below the strike price of the short put investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short put and will also experience losses in the security position if they owns shares The maximum potential loss is the full value of the strike price (less the value of the premium received) plus losses on the long security position Investors who are short naked strangles or straddles have unlimited potential loss since if the security trades above the call strike price investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short call In addition they are obligated to buy the security at the put strike price (less upfront premium received) if the security fin-ishes below the put strike price at expiration
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 22
Important information on mutual funds Fees and charges etc Different types of fees and commissions (subscription fee amount which must be retained in trust assets repurchase fee etc) are charged when investment trustsfunds are purchased and sold In addition apart from these fees and commissions trust and management fees and other fees (audit fee trust administrative charges carried interest etc) are charged and borne by you through your trust asset Fees and commissions borne by you will be a sum of these amounts Such fees and commissions vary depending on the investment trustfund and depending on the investment status and therefore we cannot provide specific amounts or calculation methods
For detailed information on fees and commissions etc of each re-spective investment trustfund please refer to the pre-contract documents (prospectus and other supplementary documents)
Important information on dividends bull Dividends are different to interest on deposits and are paid from the net asset value of investment trustsfunds Therefore when dividends are paid the base value (net asset value per unit) will decrease by an amount equivalent to the amount paid
bull Dividends may be paid exceeding the profit earned during the calculation period (trading profit including profits of dividends etc after expenses) In this case the base value (net asset value per unit) on the settlement date in this period will decrease compared to that on the settlement date in the previous period Also the level of dividends does not always reflect the rate of return for the investment trustfund during the calculation period
bull A part or all of dividends may be virtually equivalent to some repayment of the principal depending on the purchase price of the investment trustfund by an investor The same can be applied to a case that an increase in the base value (net asset value per unit) is smaller than a dividend amount due to the investment status after purchase of the investment trustfund
Please refer to the prospectus for details
Explanation of major risks (description pursuant to Ar-ticle 37 (Regulation on Advertising etc) of the Financial Instruments and Exchange Act etc) The risks described below are a summary of some general risks of investment trustsfunds (risks which have an impact on net asset value) and do not cover all risks Please refer to the pre-trade documents (prospectus and other supplementary documents)
Price volatility risk Investment trustsfunds invest mainly in equities bonds and derivative products etc The value of the investment trustfund will go up or down due to increases or decreases in the prices of such investments Further the value of such investments will be impacted by political and economic factors the financial standing of an issuer market demand and supply interest rates and other factors
Foreign currency risk Investment trustsfunds which invest in equities or bonds etc denominated in foreign currencies entail a foreign currency risk and the base value (or net asset value) of investment trustsfunds may change depending on the currency exchange rate Even when you do not experience a loss of invest-ment principal when calculated in the base currency you may suffer a loss at conversion into Japanese yen due to fluctuations in exchange rates Fur-thermore investment trustsfunds which utilize currency trading among multiple currencies may incur costs due to such currency trading depending on the difference in short-term interest rates between the currencies and you may suffer a loss
Credit risk For investment trustsfunds which invest in equities or bonds etc the prices of these investments may increase and decrease due to changes in the business or financial standing of the issuer and other factors and you may suffer a loss
Risk pertaining to liquidity Where there is sudden high volume in a particular investment or when sudden changes in the external environment surrounding markets triggers a sudden downturn in a market or period of market turmoil etc investments may not be flexibly traded In such a case a decline in the price of the investment may impact the base value (or net asset value) of the investment trust result-ing in a loss Further the management company may decide to stop calcu-lation of net asset prices or suspend sell or redemption claims
In addition for certain types of investment trustfund there is a risk that particular investments may be designated to a separate account (or side pocket) due to a lack of liquidity When a separate account is utilized by in-vestment trustsfunds restrictions may apply as to when such investments can be liquidated through a sell or redemption claim and there may be a re-striction in the timing or form of redemption claim permissible In particular for Fund of Fund investments when an investment trustfund makes an in-vestment without time limit in another fund the investment trustfund may be influenced by investment results in the other funds
Risk associated with an outflow of money received from sales orders When there is a large volume of sale orders in a short period of time the investment trustfund may be forced to sell structured securities at a lower rate than the prevailing market price to refund monies to investors and as a result you may suffer a loss Also alternative investment trustsfunds gen-erally have a limitation in selling or cashing out the investment compared to traditional investment trustsfunds Many alternative investment trustsfunds only accept a sell or redemption order on a monthly or quarterly basis and therefore you may not be able to rapidly exit the investment in for example times of economic uncertainty
Redemption risk Investment trustsfunds may become subject to mandatory redemption due to a certain reason For details please refer to the pre-trade documents (prospectus and other supplementary documents) before subscription
Concentration risk Investment trustsfunds which invest in a certain investment product or similar investment product group may significantly decrease in value (net asset value) under severe market circumstances
Country risk When changes in political economic and social conditions in investment destination countries and regions cause a dislocation in financial and security markets security prices may significantly change Also investments in emerging markets involve unique risks including small market size and trade volume political and social uncertainties undeveloped market infrastructure such as a clearing system undeveloped information disclosure system and legal system by supervising authorities large fluctuations in exchange rates restrictions on currency remittance to foreign countries and other factors and therefore may have larger price fluctuations compared to investments in major developed markets
Important information on non-Japanese stocks Please refer to the issuer information when you purchase non-Japanese stocks
Disclaimer This material is published solely for information purposes and is intended for the recipientrsquos sole use Credit Suisse does not represent or warrant its ac-curacy or completeness The material is not directly or indirectly intended for any investment solicitation and does not constitute an invitation or offer to conclude a transaction contract for financial instruments etc Credit Suisse accepts no liability for loss arising from the use of the information in this material It is recommended that you consult with the third party professional advisors as to legal or tax issues etc This material should not be reproduced or quoted without the prior express written consent of Credit Suisse The information and opinions expressed in this material were produced by Private Banking Division at Credit Suisse as of the date of writing and are subject to change without notice Views expressed in respect of particular investment products in this material may be different from or inconsistent with the ob-
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 23
servations and views of other divisions besides Private Banking due to the differences in evaluation criteria This material is solely distributed in Japan by Credit Suisse Securities (Japan) Limited Credit Suisse Securities (Japan) Limited will not distribute or forward it outside Japan
You may incur a loss as a result of fluctuations in stock prices if you invest in stocks In relation to foreign stocks you may incur a loss in such stocks due to foreign exchange rate fluctuations etc The market value of bonds is affected by interest rate fluctuations or changes in the financial standing of any issuer etc as such you may incur a loss if you sell such bonds before they are redeemed In relation to foreign bonds you may incur a loss in such bonds due to foreign exchange rate fluctuations etc The net asset value of mutual funds can fall as well as rise due to price changes of underlying stocks bonds etc and foreign exchange rate fluctuations and this may cause you to incur a loss
Structured securities and derivatives are complex instruments 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 of any structured security or transaction may be affected by changes in financial market conditions reference indices volatility and the credit quality of any issuer or reference issuer
Furthermore there are structured securities on which you may incur a loss since the redemption amounts are linked with fluctuations in reference indices etc There are also derivatives on which potential losses may exceed the amount of the initial investment Commission rates for any transactions will be as per the rates agreed between Credit Suisse and you For transactions conducted on a principal to principal basis between Credit Suisse and you the purchase or sale price will be the total consideration Transactions con-
ducted on a principal to principal basis including over the counter derivatives transactions will be quoted as a purchasebid price or selloffer price and for which a difference or spread may exist Charges in relation to transactions will be agreed prior to dealing as per our requirements under the Financial Instruments and Exchange Law
By purchasing financial instruments etc you may incur a loss or a loss in excess of the principal as a result of fluctuations in market prices or other financial indices etc Please read carefully the Pre-Contract Documentation provided for an explanation of associated risks and commissions etc of individual financial instruments etc prior to purchase Please contact your Relationship Manager if you have any questions
UNITED STATES NEITHER THIS REPORT NOR ANY COPY THEREOF MAY BE SENT TAKEN INTO OR DISTRIBUTED IN THE UNITED STATES OR TO ANY US PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE US SECURITIES ACT OF 1933 AS AMENDED)
Credit Suisse Securities (Japan) Limited Financial Instruments Dealer Di-rector-General of Kanto Local Finance Bureau (Kinsho) No 66 a member of Japan Securities Dealers Association Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association
Copyright copy 2021 Credit Suisse Group AG andor its affiliates All rights reserved
21C013A_IS_J
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 24
Imprint
Publisher Credit Suisse Private Banking amp Wealth Management Investment Solutions amp Products
Information about other Investment Solutions amp Products publications Internet httpsinvestmentcredit-suissecom
Intranet (for employees only) httpsisrcsintranet
Subscription (clients) Please contact your customer advisor to subscribe to this publication
Subscription (internal) For information on subscriptions please visit httpisrcsintranetsubscriptions
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 25
Special topic
ESG Integrated Investing according to environmental social and governance (ESG) criteria is in the process of becoming mainstream
Combining the House View with ESG convictions ldquoESG Integratedrdquo is a set of best ideas for investors to gradually transition to multi-asset portfolios that perform solidly both on traditional financial performance metrics and on ESG metrics ldquoESG Integratedrdquo is part of our Signature Convictions
Nannette Hechler-Faydherbe Chief Investment Officer ndash International Wealth Management
Jessie Gisiger Head of Credit Strategy and Investment Themes
Green transitions are at the heart of the fiscal spending and recovery plans put in place in response to the COVID-19 pandemic Against this backdrop strong regulatory momen-tum and fiscal ambitions in the USA Europe and China have only added to a global trend toward integrating ESG criteria at every level of economic activity
There is growing evidence that adhering to ESG criteria not only helps to mitigate our impact on climate change but also supports financial risk-reward for several reasons First be-sides increasing transparency and awareness ESG filters help keep in check the risk of heightened regulatory scrutiny that non-ESG-compliant business practices increasingly face Second ESG factors can impact financial business conditions such as the incurred cost of capital Focusing on good gover-nance and keeping an eye on regulatory risk are equally likely to be beneficial when considering default risk in the corporate bond market Third there are strong investment themes emerging from the policy support currently developing espe-cially in climate change to achieve net-zero carbon emissions by 2050
Signature Convictions ESG Integrated Combining key elements of the Credit Suisse House View with thematic priorities in ESG investing that emerge from these catalysts we have developed a set of best ideas (see table) that can help investors gradually transition their invest-ments toward multi-asset portfolios that perform solidly on both traditional financial performance metrics as well as ESG metrics
In fixed income ESG emerging market corporate bonds and ESG subordinated bonds offer investors an avenue to earn a yield pick-up but at a lower risk of credit spread widening than the broader index Empirical assessments have also shown that companies with higher ESG scores tend to have a lower probability of default Investors looking for an equiva-lent to money-market instruments may consider impact invest-ments which deliver low single-digit returns with limited vola-tility
In equities we highlight the Supertrends climate change and sustainable infrastructure as two key ESG-related themes that are focused on decarbonizing economic activity and are catalyzed by global regulatory momentum For investors looking for single-stock investments our Credit Suisse ESG Top 25 list includes stocks from our high conviction list that are in category 3 (ldquoESG awarerdquo) or category 4 (ldquoThematicrdquo) of our Credit Suisse ESG classification framework
Investors who would like to invest according to our preference for EM equities also have the option of doing so in an ESG-compliant manner through the MSCI Emerging Markets ESG Leaders Index That index has on average outperformed the MSCI Emerging Markets Index since 2008 This outperfor-mance can be explained by the MSCI Emerging Markets ESG Leaders Indexrsquos higher exposure to growth sectors and strong orientation to new economy sectors that benefit from powerful structural growth drivers Separately green real estate is likely to lead to higher occupancy rates and a lower probabil-ity of income loss resulting in a more stable income stream
For investors looking to alternative investments for further diversification impact private equity sustainable alpha hedge fund and carbon emission allowance futures are also interest-ing
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 11
Signature Convictions ESG Integrated
Source Credit Suisse
(16022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 12
Special topic
Bullish hopes in Chinarsquos Year ofthe Ox Our positive view on equities remains in place We express it through a preference for emerging market particularly Chinese equities
After strong gains so far this year we challenge the quality and longevity of Chinarsquos bull market and explain why we remain optimistic
John William Huia Woods CIO APAC
Just ahead of Chinese New Year Chinarsquos benchmark Shanghai Composite Index surged to new highs for the year Chinarsquos strong market gains are fueled by a rush of excess liquidity the likes of which we have not seen since 2015 But experienced investors will know that a rising tide can just as easily ndash and quickly ndash turn into an ebbing tide particularly when fundamentals become unsupportive
Red flags In fact red flags are not hard to find Possibly the most im-portant observation is that Chinarsquos growth momentum has passed its peak and will likely decelerate into 2021 A decel-erating economy does not necessarily hurt a bull market but it does not necessarily help it either
Equally important is the view that Chinarsquos ndash increasingly less dovish ndash authorities are unlikely to further stimulate the economy It has been widely observed that they remain vigilant and concerned toward the possible formation of price bubbles in real and financial assets including equity markets
Indeed the Peoplersquos Bank of Chinarsquos willingness in late January 2021 to withdraw rather than add CNY 570 bn of liquidity from interbank markets ahead of the Chinese New Year suggests that a clear inflection point has been reached with monetary policy now normalizing after two years of stimulus and easy money
Amid decelerating economic growth corporate revenues are under pressure meaning analyst earnings revisions are flat-lining and thus failing to keep pace with more vibrant emerging andor developing markets In absolute terms weaker earn-ings exert upward pressure on valuations Yet a liquidity-driven rally can still push valuations higher
Imbalance The liquidity-centric imbalance at the heart of Chinarsquos bull market leaves it exposed and vulnerable to correction in our opinion An environment of tightening monetary policy decel-erating growth and stretched valuations are generally not conducive to sustained price appreciation In fact in Chinarsquos case incrementally greater inflows of liquidity will be required to sustain existing price levels At least from an onshore per-spective the music will stop
Intriguingly attention is now turning to foreign investor inflows which hitherto have been muted But there are reasons why a rebound in sentiment might be expected including improving geopolitical sentiment with the new administration in the USA and expectation of CNY appreciation which should boost returns for USD investors Overall a reacceleration in flows could be a key factor in keeping Chinese markets supported
Sound diversification is key On balance at least for the next few months we remain overweight Chinese equities in a portfolio context Our funda-mental concerns are medium-term in nature while near-term risks ndash supported by liquidity ndash are tilted toward further price gains In line with our House View we emphasize the value of well-diversified exposure to EM equities overall
(15022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 13
Fixed income
EM HC corporate bonds preferred The ongoing reflationary path is going to support long-dated yields warranting a con-tinued cautious stance on government bonds
We reduce our allocation to EM HC sovereign bonds to benchmark weight We no longer see IG credit as attractive and prefer EM HC corporate bonds
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
Global benchmark yields have continued to trend higher in the last few weeks supported by reflationary expectations Despite the marketsrsquo repricing of more US fiscal stimulus the Federal Reserve (Fed) kept control of front-end rates expectations with the US yield curve further steepening as a result Going forward long-dated inflation expectations are still expected to be the main driver of nominal benchmark yields Both should moderately rise in tandem particularly in the USA With other developed regions following the same reflationary theme albeit with a lag we anticipate that global government bonds will remain an unattractive investment We therefore keep exposure below benchmark allocations in portfolios Furthermore we keep a relatively short duration stance in US Eurozone and Swiss bond markets and prefer US inflation-linked bonds over comparable nominal govern-ment bonds
IG credit no longer attractive prefer EM HC corporate bonds We no longer think that global investment grade (IG) credit offers attractive return potential While monetary policy re-mains supportive IG spreads are already at historical lows and no longer offer enough compensation against the further rise in benchmark yields we expect Global high yield (HY) credit market returns should remain attractive thanks to policy support and the economic recovery we project However we
see limited further spread compression potential in US HY and European HY from the current historical lows We believe emerging market hard currency (EM HC) corporate bonds are most attractive within credit with pro-cyclical emerging markets benefiting from the global growth rebound expected this year At the same time and due to their comparatively low benchmark duration EM HC corporate bonds are less sensitive to higher US government yields than global IG EM HC corporates on average provide similar credit fundamentals to developed market credit but offer more attractive spreads amid the current reflationary environment Also we see more opportunities in EM HC HY corporates particularly in Asia where spreads offer a premium of around 200 bp over US HY
EM HC sovereigns reduced to benchmark allocation EM HC sovereign bond valuations are currently tight with spreads not far off the lows reached after the great financial crisis Inflation has largely bottomed out due to base effects food and energy prices and there is limited scope for further monetary stimulus EM HC sovereign bond spreads have a high correlation with US Treasury yields With the latter still on the rise risks to EM HC sovereign bonds are increasing Positioning is at record highs and flows continue to acceler-ate This suggests that a further strong performance is less likely Given these considerations we have decided to reduce EM HC sovereign bonds to benchmark allocation in our portfolios (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 14
Equities
Remain constructive on globalequities We maintain our attractive return outlook for global equities with a preference for emerging markets UK Germany financials materials and health care
After a double-digit earnings decline in 2020 global earnings are set to recover sharply this year
Marc Haumlfliger Global Equity Strategist
We maintain our attractive return outlook for global equities on the back of supportive monetary conditions vaccine roll-outs growing stimulus prospects and our constructive outlook for economic and earnings growth While traditional valuation metrics remain elevated they look less stretched relative to other asset classes such as global treasury bonds The earnings recovery is key to our thesis of attractive returns for global equities as we do not expect further re-ratings (ie higher multiples) to drive equity markets going forward So far the Q4 earnings results underpin our view that companies have learned how to deal with the current circumstances given earnings results are mostly surpassing projections As a result of this strong showing global EPS growth rates (YoY) will likely be positive again for the Q4 2020 earnings season After an overall double-digit earnings decline in 2020 global earnings are set to recover sharply this year ndash particularly in cyclical market segments Risks to our constructive view on equities come from COVID-19 concerns (mutation potential vaccine disappointments) disappointing fiscal stimulus or earlier-than-expected comments about a withdrawal of mon-etary stimulus
In a portfolio context we keep our overweight in emerging market (EM) equities as we remain bearish on the USD ex-pect higher commodity prices and see the re-opening environ-ment as positive for EM equities We expect cyclical segments that lagged the broader equity benchmark in 2020 ndash such as the UK Germany and financials ndash to catch up amid the im-proved economic outlook and rising inflation expectations
Latest view changes In developed market equities we turn neutral from outperform on Hong Kong equities as a result of their strong performance in recent weeks and increasing macro headwinds In EM eq-uities we now expect South African equities to outperform driven by attractive valuation a strong earnings picture and an accommodative central bank We no longer expect Indian equities to underperform and turn neutral following the gov-ernmentrsquos pro-growth budget announcement an improved macroeconomic outlook and earnings estimates being revised higher at a faster pace than peers
Earnings expected to recover in 2021
Last data point 09022020 Historical performance indications and financial market
scenarios are not reliable indicators of current or future performance Source Factset
Estimates Credit Suisse
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 15
Alternative investments
Still positive on commodities Commodity performance has been strong year-to-date A near-term pause is possible but we retain a positive view and prefer diversified exposure with a cyclical bias
Despite recent resilience we expect listed real estate to lag equities In hedge funds we highlight opportunistic long-short discretionary and EM macro managers as well as private credit
Jelena Kucenko Head of Alternative Investments
Stefan Graber Head of Commodity Strategy
Hedge funds Be selective Hedge funds were flat in January as short covering activity at month-end erased initial gains Fundamental long-short and macro funds suffered the most while relative value and event driven were more resilient Our Trading Conditions Barometer is in favorable territory Combined with regional and sector divergences arising from vaccine rollouts compli-ance with environmental social and governance criteria and record levels of capital-market activity this creates opportuni-ties for long-short managers We also highlight private credit strategies with a focus on consumer loans and mid-market companies which should benefit from resilient household fi-nances and a post-pandemic recovery Discretionary and emerging market (EM) macro managers are preferred in case of market setbacks
Commodities Providing cyclicality and inflation hedge Commodities started 2021 on a strong note focusing on positive growth expectations instead of near-term COVID-19 concerns A near-term pause is possible as the latest gains came ahead of an anticipated reacceleration in industrial ac-tivity That said improved bottom-up fundamentals have flipped aggregate curves into backwardation translating into positive roll yields which may attract additional investor inter-est Commodities also provide a hedge should inflation sur-prise to the upside We retain our positive view on the asset class and favor diversified exposure with a cyclical tilt (oil energy) For oil the March OPEC+ meeting is the next event
risk and a potential source of volatility as the group will likely discuss supply hikes We still think that gold offers diversifica-tion and some upside but the bull run could be maturing as yield curves have started to steepen We thus tone down our optimism on the metal
Real estate Expected to underperform equities Listed real estate slightly outperformed global equities in January thanks to strong earnings results in logistics and a rebound in oversold retail companies as short sellers covered their positions But we believe that further upside potential for the sector is limited as the impact of lockdowns is not yet reflected in landlordsrsquo share prices in our view Additionally valuations in structurally resilient sectors such as logistics and data centers already reflect fundamentals This and the prospect of higher long-term yields and an increased risk of US regulatory headwinds reinforce our negative sector view
Private equity Backdrop still positive Robust investment activity at the end of last year pushed pri-vate equity deal values higher but the asset class still offers better priced opportunities than public markets Dry powder ndash committed but uninvested capital ndash is at a record of over USD 2 trn with subdued fundraising activity expected to re-bound as investors increase commitments in 2021 according to data provider Preqin The expected economic rebound is supportive for the asset class but rising long-term interest rates pose risk to financing costs We highlight strategies offering high growth with limited leverage (venture capital growth capital) and secondary funds which can exploit market opportunities tactically generating excess returns over time
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 16
Foreign exchange
Keep favoring cyclical currencies We maintain a short USD bias and prefer commodity and cyclical currencies such as the EUR GBP or SEK
Within our positive emerging market stance we particularly like the CNY KRW BRL and RUB
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
The USD was broadly flat against other major currencies over the last month Investorsrsquo focus on US fiscal stimulus and an expected rise in US inflation allowed for some normalization in previously large USD short positions While the repricing of near-term growth expectations also in light of a more rapid US vaccination campaign created temporary USD resilience we think this improvement is likely partly reflected in the USD already We maintain that as the Federal Reserve (Fed) keeps short-term rates close to zero for longer there is little room for sustained gains in the USD Moreover US fiscal stimulus will not only deteriorate fiscal balances but also deepen the current account deficit This will also benefit the global econ-omy through improved global trade and sentiment which should weigh on the USD Uncertainties relating to new COVID-19 variants and extended USD short positioning re-main a risk in the short term
Constructive on cyclical currencies A slow start to vaccine rollouts and renewed political risks in Italy somewhat dented sentiment toward the EUR in early February Even so the single currency remained stable vs the USD The Eurozone is facing a delayed recovery but this is consensus already and likely temporary in nature With political risks now subsiding the EU recovery fund operational in the next quarter and the global growth recovery benefitting the export-oriented Eurozone we think EURUSD can gain some further ground and target 124 in 3M Elsewhere in Europe we also remain positive on the SEK and the GBP
vs the USD With global reflation set to continue and com-modity prices likely to remain supported through the ongoing rebalancing we still favor commodity currencies in particular the NZD CAD and NOK
BRL RUB CNY and KRW preferred Emerging market (EM) currencies were broadly range-bound on an index level over the last month but with significant re-turn dispersion across currencies The main arguments sup-porting our attractive view on EM FX remain in place We continue to see further scope for a broad appreciation of EM FX versus the USD Even though the EM economic recovery has peaked economic activity still looks solid relative to de-veloped markets External positions remain in good shape and non-resident flows are still supportive In addition with inflation bottoming and food prices increasing scope for dovish EM central bank surprises seems to be exhausted This should be favorable for EM carry versus the USD
The RUB BRL CNY and KRW remain our preferred curren-cies in EM Both the RUB and BRL are cheaply valued Addi-tionally the RUB should profit from attractive risk-adjusted carry and the BRL from more hawkish central bank expecta-tions In Asia we remain positive on the CNY and KRW and neutral on the other Asian FX We lower our 3M USDCNY target to 635 but keep our 12M target at 625 Our USDKRW targets remain unchanged at 1060 and 1010 in 3M and 12M respectively We retain a mild downward bias on the other USDAsia pairs expecting broad USD weak-ness (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 17
Forecasts
At a glance More information on the forecasts and estimates is available Credit Selected indices on request Past performance is not an indicator of future
Yield Spread Duration 3M TR 12M TR fore-performance Performance can be affected by commissions () (bp) (years) forecast cast fees or other charges as well as exchange rate fluctuations BC Global Aggregate 091 33 731 -010 010
BC Global Treasuries 058 9 862 -030 -050
BC Global IG Corp 141 94 735 033 130 Central bank rate10-year government bonds BC Global HY Corp 429 378 416 062 247
CB rate 10Y JPM EMBI Global Di- 480 344 764 032 126 yield versified HC
in Spot 3M 12M Spot 3M 12M
CHF -075 -075 -075 -026 -030 -030 BC = Barclays Capital IG= Investment Grade JPM = JP Morgan (EMBI+) Index data as of 1522021 Forecast as on 1522021
EUR -050 -050 -050 -035 -030 -030 These forecasts are no reliable indicators of future performance Source Bloomberg
USD 013 000-025 000-025 130 140 150 Credit Suisse GBP 010 010 010 062 050 060
AUD 010 010 010 139 130 140
JPY -010 -010 -010 010 010 010 Foreign exchange
Spot 3M 12M Spot rates are closing prices as of 1622021 Forecast date 1122021 These
EURUSD 121 124 125 forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC USDCHF 089 087 088
EURCHF 108 108 110
USDJPY 10594 10200 10000
Equities EURGBP 087 087 086
GBPUSD 139 143 145 Index Spot PE Div y 3M 12M () AUDUSD 078 078 079
MSCI AC World 1679 202 22 1690 1790 USDCAD 126 123 120
US SampP 500 3933 234 21 3950 4150 EURSEK 1004 1010 1020
Eurostoxx 50 3726 181 26 3700 3850 EURNOK 1016 1020 1020
UK FTSE 100 6749 143 43 6700 7000 EURPLN 449 457 459
Japan Topix 1965 185 21 1940 1970 USDCNY 646 635 625
Australia SampPASX 6917 207 38 6900 7150 USDSGD 132 131 128
200 USDKRW 109898 106000 101000
Switzerland SMI 10908 186 28 10950 11400 USDINR 7264 7270 7200
MSCI Emerging Mar- 190621 166 22 194000 207000 USDBRL 538 525 530 kets USDMXN 1994 2050 2150
Prices as of 1622021 Forecast as on 1122021 Gross return (incl dividends) Spot rates are as of 1722021 These forecasts are no reliable indicators of future performance Source Bloomberg These forecasts are no reliable indicators of future performance Source Bloomberg Datastream Credit SuisseIDC Credit SuisseIDC
Commodities Real GDP growth and inflation Spot 3M 12M GDP Inflation
Gold (USDoz) 1793 1900 2000 growth
Silver (USDoz) 273 27 30 in 2020 2021 2022 2020 2021 2022
Platinum (USDoz) 12624 1300 1250 CH -32 35 20 -07 03 02
Palladium (USDoz) 2390 2400 2500 EMU -72 50 42 03 06 10
Copper (USDton) 8416 8300 7900 USA -35 57 35 12 20 21
WTI Crude Oil (USDbbl) 600 60 60 UK -100 53 75 09 14 18
Bloomberg Commodity index 1815 181 186 Australia -20 35 32 08 15 15
Japan -49 17 19 -02 01 03
Spot rates are as of 1722021 forecast as on 1122021 China 23 71 52 25 11 17 These forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC Last forecast update 10022021
These forecasts are no reliable indicators of future performance Source Bloomberg Credit Suisse
(17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 18
Glossary
Risk warnings
Emerging markets Emerging markets are located in countries that possess one or more of the following characteristics a certain degree of political instability relatively unpredictable financial markets and economic growth patterns a financial market that is still at the development stage or a weak economy Emerging market investments usually result in higher risks as a result of political economic credit exchange rate market liquidity legal settlement market shareholder and creditor risks
Hedge funds Regardless of structure hedge funds are not limited to any particular investment discipline or trading strategy and seek to profit in all kinds of markets by using leverage derivative instruments and speculative investment strategies that may increase the risk of investment loss
Commodity investments Commodity transactions carry a high degree of risk and may not be suitable for many private investors The extent of loss due to market movements can be substantial or even result in a total loss
Real estate Investors in real estate are exposed to liquidity foreign currency and other risks including cyclical risk rental and local market risk as well as environmental risk and changes to the legal situation
Currency risks Investments in foreign currencies involve the additional risk that the foreign currency might lose value against the investorrsquos reference currency
Equity risk Equities are subject to market forces and hence fluctuations in value which are not entirely predictable
Market risk Financial markets rise and fall based on economic conditions inflationary pressures world news and business-specific reports While trends may be detected over time it can be difficult to predict the direction of the market and individual stocks This variability puts stock investments at risk of losing value
High Yield bond risk High Yield Bonds are typically rated below investment grade or are unrated and as such are often subject to a higher risk of issuer default
Perpetual Bond risk Perpetual Bonds have no maturity date and therefore the Interest pay-out depends on the viability of the issuer in the very long term
Subordinated Bond risk In case of liquidation of the issuer investors can only get back the principal after other senior creditors are paid
Risk of Bonds with variable deferral of interest terms Investors would face uncertainty over the amount and time of the interest payments to be received
Callable bond risk Investors face reinvestment risk when the issuer exercises its right to redeem the bond before it matures
Risk of Bonds with extendable maturity date Investors would not have a definite schedule of principal repayment
Convertible or exchangeable bond risk Investors are subject to both equity and bond investment risk
Cocos risk The bond may be written-off fully or partially or converted to common stock on the occurrence of a trigger event
Explanation of indices frequently used in reports
Index Comment
Australia SampPASX 200 SampPASX 200 is an Australian market-capitalization-weighted and float-adjusted stock index calculated by Standard and Poors
BC High Yield Corp USD The US Corporate High Yield Index measures USD-denominated non-investment grade fixed-rate and taxable corporate bonds The index is calculated by Barclays
BC High Yield Pan EUR The Euro Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate EUR The US Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate USD The IG Corporate Index tracks the fixed-rate investment-grade dollar-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
Canada SampPTSX comp The SampPTSX composite index is the Canadian equivalent of the SampP 500 Index in the USA The index contains the largest stocks traded on the Toronto Stock Exchange
Consumer Confidence Indices Consumer Confidence Indices (CCIs) are based on surveys of consumers spending intentions and economic situations as well as their concerns and expectations for the immediate future
CS Hedge Fund Index The Credit Suisse Hedge Fund Index is compiled by Credit Suisse Hedge Index LLC It is an asset-weighted hedge fund index and includes only funds as opposed to separate accounts The index reflects performance net of all hedge fund component performance fees and expenses
CS LSI ex govt CHF The Liquid Swiss Index ex govt CHF is a market-capitalized bond index representing the most liquid and tradable portion of the Swiss bond market excluding Swiss government bonds The index is calculated by Credit Suisse
DAX The German Stock Index stock represents 30 of the largest and most liquid German companies that trade on the Frankfurt Exchange
DXY A measure of the value of the US dollar relative to the majority of its most important trading partners The US Dollar Index is similar to other trade-weighted indices which also use the exchange rates from the same major currencies
Eurostoxx 50 Eurostoxx 50 is a market-capitalization-weighted stock index of 50 leading blue-chip companies in the Eurozone
FTSE EPRANAREIT Global Real Estate Index Series The FTSE EPRANAREIT Global Real Estate Index Series is designed to represent general trends in eligible real estate equities worldwide
Hedge Fund Barometer The Hedge Fund Barometer is a proprietary Credit Suisse scoring tool that measures market conditions for hedge fund strategies It comprises four components liquidity volatility systemic risks and business cycle
Japan Topix TOPIX also known as the Tokyo Stock Price Index tracks all large Japanese companies listed in the stock exchanges first section The index calculation excludes temporary issues and preferred stocks
JPM EM hard curr USD The Emerging Market Bond Index Plus tracks the total return of hard-currency sovereign bonds across the most liquid emerging markets The index encompasses US-denominated Brady bonds (dollar-denominated bonds issued by Latin American countries) loans and Eurobonds
JPM EM local curr hedg USD The JPMorgan Government Bond Index tracks local currency bonds issued by emerging market governments across the most accessible markets for international investors
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 19
MSCI AC AsiaPacific The MSCI All Country Asia Pacific Index captures large and mid cap representation across 5 developed market countries and 8 emerging markets countries in the Asia Pacific region With 1000 constituents the index covers approximately 85 of the free float-adjusted market capitalization in each country
MSCI AC World The MSCI All Country World Index captures large and mid cap representation across 23 developed markets and 23 emerging market countries With roughly 2480 constituents the index covers around 85 of the global investable equity opportunity set
MSCI Emerging Markets MSCI Emerging Markets is a free-float-weighted Index designed to measure equity market performance in global emerging markets The index is developed and calculated by Morgan Stanley Capital International
MSCI EMU The MSCI EMU Index (European Economic and Monetary Union) captures large and mid cap representation across the 10 Developed Markets countries in the EMU With 237 constituents the index covers approximately 85 of the free float-adjusted market capitalization of the EMU
MSCI Europe The MSCI Europe Index captures large and mid cap representation across 15 developed markets countries in Europe With 442 constituents the index covers approximately 85 of the free float-adjusted market capitalization across the European developed markets equity universe
MSCI UK The MSCI United Kingdom Index is designed to measure the performance of the large and mid cap segments of the UK market With 111 constituents the index covers approximately 85 of the free float-adjusted market capitalization in the UK
MSCI World MSCI World is an index of global equity markets developed and calculated by Morgan Stanley Capital International Calculations are based on closing prices with dividends reinvested
OECD Composite Leading Indicators OECD Composite Leading Indicators (CLIs) are designed to provide early signals of turning points in business cycles with components that measure early stages of production respond to changes in economic activity and are sensitive to expectations of future activity
Purchasing Managers Indices Purchasing Managers Indices (PMIs) are economic indicators derived from monthly surveys of private-sector companies The two principal producers of PMIs are Markit Group which conducts PMIs for over 30 countries worldwide and the Institute for Supply Management (ISM) which conducts PMIs for the United States The indices include additional sub-indices for manufac-turing surveys such as new orders employment exports stocks of raw materials and finished goods prices of inputs and finished goods and services
Russell 1000 Growth Index The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe based on 1000 large-cap companies with higher price-to-book ratios and higher forecast growth values
Russell 1000 Index The Russell 1000 Index is a stock market index that represents the highest-ranking 1000 stocks in the Russell 3000 Index (encompassing the 3000 largest US-traded stocks with the underlying companies all incorporated in the USA) and representing about 90 of the total market capitalization of that index The Russell 1000 Index has a weighted average market capitalization of USD 81 billion and the median market capitalization is approximately USD 46 billion
Russell 1000 Value Index The Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe based on 1000 large-cap companies with lower price-to-book ratios and lower expected growth values
Switzerland SMI The Swiss Market Index is made up of 20 of the largest companies listed of the Swiss Performance Index universe It represents 85 of the free-float capitalization of the Swiss equity market As a price index the SMI is not adjusted for dividends
UK FTSE 100 FTSE 100 is a market-capitalization-weighted stock index that represents 100 of the most highly capitalized companies traded on the London Stock exchange The equities have an investibility weighting in the index calculation
US SampP 500 Standard and Poors 500 is a capitalization-weighted stock index representing all major industries in the USA which measures the performance of the domestic economy through changes in the aggregate market value
Abbreviations frequently used in reports
Abb Description Abb Description
3612 MMA 3612 month moving average IMF International Monetary Fund
AI Alternative investments LatAm Latin America
APAC Asia Pacific Libor London interbank offered rate
bbl barrel m bd Million barrels per day
BI Bank Indonesia M1 A measure of the money supply that includes all physical money such as coins and currency as well as demand deposits checking accounts and negotiable order of withdrawal accounts
BoC Bank of Canada M2 A measure of money supply that includes cash and checking deposits (M1) as well as savings deposits money market mutual funds and other time deposits
BoE Bank of England M3 A measure of money supply that includes M2 as well as large time deposits institutional money market funds short-term re-purchase agreements and other larger liquid assets
BoJ Bank of Japan MampA Mergers and acquisitions
bp Basis points MAS Monetary Authority of Singapore
BRIC Brazil Russia China India MLP Master Limited Partnership
CAGR Compound annual growth rate MoM Month-on-month
CBOE Chicago Board Options Exchange MPC Monetary Policy Committee
CFO Cash from operations OAS Option-adjusted spread
CFROI Cash flow return on investment OECD Organisation for Economic Co-operation and Development
DCF Discounted cash flow OIS Overnight indexed swap
DM Developed Market OPEC Organization of Petroleum Exporting Countries
DMs Developed Markets PB Price-to-book value
EBITDA Earnings before interest taxes depreciation and amortization PE Price-earnings ratio
ECB European Central Bank PBoC Peoples Bank of China
EEMEA Eastern Europe Middle East and Africa PEG PE ratio divided by growth in EPS
EM Emerging Market PMI Purchasing Managers Index
EMEA Europe Middle East and Africa PPP Purchasing power parity
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 20
EMs Emerging Markets QE Quantitative easing
EMU European Monetary Union QoQ Quarter-on-quarter
EPS Earnings per share rhs right-hand side (for charts)
ETF Exchange traded funds RBA Reserve Bank of Australia
EV Enterprise value RBI Reserve Bank of India
FCF Free cash flow RBNZ Reserve Bank of New Zealand
Fed US Federal Reserve REIT Real estate investment trust
FFO Funds from operations ROE Return on equity
FOMC Federal Open Market Committee ROIC Return on invested capital
FX Foreign exchange RRR Reserve requirement ratio
G10 Group of Ten SAA Strategic asset allocation
G3 Group of Three SDR Special drawing rights
GDP Gross domestic product SNB Swiss National Bank
GPIF Government Pension Investment Fund TAA Tactical asset allocation
HC Hard currency TWI Trade-Weighted Index
HY High yield VIX Volatility Index
IBD Interest-bearing debt WTI West Texas Intermediate
IC Credit Suisse Investment Committee YoY Year-on-year
IG Investment grade YTD Year-to-date
ILB Inflation-linked bond Personal Consumption An indicator of the average increase in prices for all domestic Expenditure (PCE defla- personal consumption tor)
Currency codes frequently used in reports
Code Currency Code Currency
ARS Argentine peso KRW South Korean won
AUD Australian dollar MXN Mexican peso
BRL Brazilian real MYR Malaysian ringgit
CAD Canadian dollar NOK Norwegian krone
CHF Swiss franc NZD New Zealand dollar
CLP Chilean peso PEN Peruvian nuevo sol
CNY Chinese yuan PHP Philippine peso
COP Colombian peso PLN Polish złoty
CZK Czech koruna RUB Russian ruble
EUR Euro SEK Swedish kronakronor
GBP Pound sterling SGD Singapore dollar
HKD Hong Kong dollar THB Thai baht
HUF Hungarian forint TRY Turkish lira
IDR Indonesian rupiah TWD New Taiwan dollar
ILS Israeli new shekel USD United States dollar
INR Indian rupee ZAR South African rand
JPY Japanese yen
Important information on derivatives
Pricing Option premiums and prices mentioned are indicative only Option premiums and prices can be subject to very rapid changes The prices and premiums mentioned are as of the time indicated in the text and might have changed substantially in the meantime
Risks Derivatives are complex instruments and are intended for sale only to investors who are capable of understanding and assuming all the risks involved Investors must be aware that adding option positions to an existing portfolio may change the characteristics and behavior of that portfolio substantially A portfoliorsquos sensitivity to certain market moves can be heavily impacted by the leverage effect of options
Buying calls Investors who buy call options risk the loss of the entire premium paid if the underlying security trades below the strike price at expiration
Buying puts Investors who buy put options risk loss of the entire premium paid if the underlying security finishes above the strike price at expiration
Selling calls Investors who sell calls commit themselves to sell the underlying for the strike price even if the market price of the underlying is substantially higher Investors who sell covered calls (own the underlying security and sell a call) risk limiting their upside to the strike price plus the upfront premium received and may have their security called away if the security price exceeds the strike price of the short call Additionally the investor has full downside participation that is only partially offset by the premium received upfront If investors are forced to sell the underlying they might be subject to taxing Investors shorting naked calls (ie selling calls but without holding the underlying security) risk unlimited losses of security price less strike price
Selling puts Put sellers commit to buying the underlying security at the strike price in the event the security falls below the strike price The maximum loss is the full strike price less the premium received for selling the put
Buying call spreads Investors who buy call spreads (buy a call and sell a call with a higher strike) risk the loss of the entire premium paid if the underlying trades below the lower strike price at expiration The maximum gain from buying call spreads is the difference between the strike prices less the upfront premium paid
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 21
Selling naked call spreads Selling naked call spreads (sell a call and buy a farther out-of-the-money call with no underlying security position) Investors risk a maximum loss of the difference between the long call strike and the short call strike less the upfront premium taken in if the underlying security finishes above the long call strike at expiration The maximum gain is the upfront premium taken in if the security finishes below the short call strike at expiration
Buying put spreads Investors who buy put spreads (buy a put and sell a put with a lower strike price) also have a maximum loss of the upfront premium paid The maximum gain from buying put spreads is the difference between the strike prices less the upfront premium paid
Buying strangles Buying strangles (buy put and buy call) The maximum loss is the entire premium paid for both options if the underlying trades between the put strike and the call strike at expiration
Selling strangles or straddles Investors who are long a security and short a strangle or straddle risk capping their upside in the security to the strike price of the call that is sold plus the upfront premium received Additionally if the security trades below the strike price of the short put investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short put and will also experience losses in the security position if they owns shares The maximum potential loss is the full value of the strike price (less the value of the premium received) plus losses on the long security position Investors who are short naked strangles or straddles have unlimited potential loss since if the security trades above the call strike price investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short call In addition they are obligated to buy the security at the put strike price (less upfront premium received) if the security fin-ishes below the put strike price at expiration
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 22
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For detailed information on fees and commissions etc of each re-spective investment trustfund please refer to the pre-contract documents (prospectus and other supplementary documents)
Important information on dividends bull Dividends are different to interest on deposits and are paid from the net asset value of investment trustsfunds Therefore when dividends are paid the base value (net asset value per unit) will decrease by an amount equivalent to the amount paid
bull Dividends may be paid exceeding the profit earned during the calculation period (trading profit including profits of dividends etc after expenses) In this case the base value (net asset value per unit) on the settlement date in this period will decrease compared to that on the settlement date in the previous period Also the level of dividends does not always reflect the rate of return for the investment trustfund during the calculation period
bull A part or all of dividends may be virtually equivalent to some repayment of the principal depending on the purchase price of the investment trustfund by an investor The same can be applied to a case that an increase in the base value (net asset value per unit) is smaller than a dividend amount due to the investment status after purchase of the investment trustfund
Please refer to the prospectus for details
Explanation of major risks (description pursuant to Ar-ticle 37 (Regulation on Advertising etc) of the Financial Instruments and Exchange Act etc) The risks described below are a summary of some general risks of investment trustsfunds (risks which have an impact on net asset value) and do not cover all risks Please refer to the pre-trade documents (prospectus and other supplementary documents)
Price volatility risk Investment trustsfunds invest mainly in equities bonds and derivative products etc The value of the investment trustfund will go up or down due to increases or decreases in the prices of such investments Further the value of such investments will be impacted by political and economic factors the financial standing of an issuer market demand and supply interest rates and other factors
Foreign currency risk Investment trustsfunds which invest in equities or bonds etc denominated in foreign currencies entail a foreign currency risk and the base value (or net asset value) of investment trustsfunds may change depending on the currency exchange rate Even when you do not experience a loss of invest-ment principal when calculated in the base currency you may suffer a loss at conversion into Japanese yen due to fluctuations in exchange rates Fur-thermore investment trustsfunds which utilize currency trading among multiple currencies may incur costs due to such currency trading depending on the difference in short-term interest rates between the currencies and you may suffer a loss
Credit risk For investment trustsfunds which invest in equities or bonds etc the prices of these investments may increase and decrease due to changes in the business or financial standing of the issuer and other factors and you may suffer a loss
Risk pertaining to liquidity Where there is sudden high volume in a particular investment or when sudden changes in the external environment surrounding markets triggers a sudden downturn in a market or period of market turmoil etc investments may not be flexibly traded In such a case a decline in the price of the investment may impact the base value (or net asset value) of the investment trust result-ing in a loss Further the management company may decide to stop calcu-lation of net asset prices or suspend sell or redemption claims
In addition for certain types of investment trustfund there is a risk that particular investments may be designated to a separate account (or side pocket) due to a lack of liquidity When a separate account is utilized by in-vestment trustsfunds restrictions may apply as to when such investments can be liquidated through a sell or redemption claim and there may be a re-striction in the timing or form of redemption claim permissible In particular for Fund of Fund investments when an investment trustfund makes an in-vestment without time limit in another fund the investment trustfund may be influenced by investment results in the other funds
Risk associated with an outflow of money received from sales orders When there is a large volume of sale orders in a short period of time the investment trustfund may be forced to sell structured securities at a lower rate than the prevailing market price to refund monies to investors and as a result you may suffer a loss Also alternative investment trustsfunds gen-erally have a limitation in selling or cashing out the investment compared to traditional investment trustsfunds Many alternative investment trustsfunds only accept a sell or redemption order on a monthly or quarterly basis and therefore you may not be able to rapidly exit the investment in for example times of economic uncertainty
Redemption risk Investment trustsfunds may become subject to mandatory redemption due to a certain reason For details please refer to the pre-trade documents (prospectus and other supplementary documents) before subscription
Concentration risk Investment trustsfunds which invest in a certain investment product or similar investment product group may significantly decrease in value (net asset value) under severe market circumstances
Country risk When changes in political economic and social conditions in investment destination countries and regions cause a dislocation in financial and security markets security prices may significantly change Also investments in emerging markets involve unique risks including small market size and trade volume political and social uncertainties undeveloped market infrastructure such as a clearing system undeveloped information disclosure system and legal system by supervising authorities large fluctuations in exchange rates restrictions on currency remittance to foreign countries and other factors and therefore may have larger price fluctuations compared to investments in major developed markets
Important information on non-Japanese stocks Please refer to the issuer information when you purchase non-Japanese stocks
Disclaimer This material is published solely for information purposes and is intended for the recipientrsquos sole use Credit Suisse does not represent or warrant its ac-curacy or completeness The material is not directly or indirectly intended for any investment solicitation and does not constitute an invitation or offer to conclude a transaction contract for financial instruments etc Credit Suisse accepts no liability for loss arising from the use of the information in this material It is recommended that you consult with the third party professional advisors as to legal or tax issues etc This material should not be reproduced or quoted without the prior express written consent of Credit Suisse The information and opinions expressed in this material were produced by Private Banking Division at Credit Suisse as of the date of writing and are subject to change without notice Views expressed in respect of particular investment products in this material may be different from or inconsistent with the ob-
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 23
servations and views of other divisions besides Private Banking due to the differences in evaluation criteria This material is solely distributed in Japan by Credit Suisse Securities (Japan) Limited Credit Suisse Securities (Japan) Limited will not distribute or forward it outside Japan
You may incur a loss as a result of fluctuations in stock prices if you invest in stocks In relation to foreign stocks you may incur a loss in such stocks due to foreign exchange rate fluctuations etc The market value of bonds is affected by interest rate fluctuations or changes in the financial standing of any issuer etc as such you may incur a loss if you sell such bonds before they are redeemed In relation to foreign bonds you may incur a loss in such bonds due to foreign exchange rate fluctuations etc The net asset value of mutual funds can fall as well as rise due to price changes of underlying stocks bonds etc and foreign exchange rate fluctuations and this may cause you to incur a loss
Structured securities and derivatives are complex instruments 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 of any structured security or transaction may be affected by changes in financial market conditions reference indices volatility and the credit quality of any issuer or reference issuer
Furthermore there are structured securities on which you may incur a loss since the redemption amounts are linked with fluctuations in reference indices etc There are also derivatives on which potential losses may exceed the amount of the initial investment Commission rates for any transactions will be as per the rates agreed between Credit Suisse and you For transactions conducted on a principal to principal basis between Credit Suisse and you the purchase or sale price will be the total consideration Transactions con-
ducted on a principal to principal basis including over the counter derivatives transactions will be quoted as a purchasebid price or selloffer price and for which a difference or spread may exist Charges in relation to transactions will be agreed prior to dealing as per our requirements under the Financial Instruments and Exchange Law
By purchasing financial instruments etc you may incur a loss or a loss in excess of the principal as a result of fluctuations in market prices or other financial indices etc Please read carefully the Pre-Contract Documentation provided for an explanation of associated risks and commissions etc of individual financial instruments etc prior to purchase Please contact your Relationship Manager if you have any questions
UNITED STATES NEITHER THIS REPORT NOR ANY COPY THEREOF MAY BE SENT TAKEN INTO OR DISTRIBUTED IN THE UNITED STATES OR TO ANY US PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE US SECURITIES ACT OF 1933 AS AMENDED)
Credit Suisse Securities (Japan) Limited Financial Instruments Dealer Di-rector-General of Kanto Local Finance Bureau (Kinsho) No 66 a member of Japan Securities Dealers Association Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association
Copyright copy 2021 Credit Suisse Group AG andor its affiliates All rights reserved
21C013A_IS_J
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 24
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Publisher Credit Suisse Private Banking amp Wealth Management Investment Solutions amp Products
Information about other Investment Solutions amp Products publications Internet httpsinvestmentcredit-suissecom
Intranet (for employees only) httpsisrcsintranet
Subscription (clients) Please contact your customer advisor to subscribe to this publication
Subscription (internal) For information on subscriptions please visit httpisrcsintranetsubscriptions
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 25
Signature Convictions ESG Integrated
Source Credit Suisse
(16022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 12
Special topic
Bullish hopes in Chinarsquos Year ofthe Ox Our positive view on equities remains in place We express it through a preference for emerging market particularly Chinese equities
After strong gains so far this year we challenge the quality and longevity of Chinarsquos bull market and explain why we remain optimistic
John William Huia Woods CIO APAC
Just ahead of Chinese New Year Chinarsquos benchmark Shanghai Composite Index surged to new highs for the year Chinarsquos strong market gains are fueled by a rush of excess liquidity the likes of which we have not seen since 2015 But experienced investors will know that a rising tide can just as easily ndash and quickly ndash turn into an ebbing tide particularly when fundamentals become unsupportive
Red flags In fact red flags are not hard to find Possibly the most im-portant observation is that Chinarsquos growth momentum has passed its peak and will likely decelerate into 2021 A decel-erating economy does not necessarily hurt a bull market but it does not necessarily help it either
Equally important is the view that Chinarsquos ndash increasingly less dovish ndash authorities are unlikely to further stimulate the economy It has been widely observed that they remain vigilant and concerned toward the possible formation of price bubbles in real and financial assets including equity markets
Indeed the Peoplersquos Bank of Chinarsquos willingness in late January 2021 to withdraw rather than add CNY 570 bn of liquidity from interbank markets ahead of the Chinese New Year suggests that a clear inflection point has been reached with monetary policy now normalizing after two years of stimulus and easy money
Amid decelerating economic growth corporate revenues are under pressure meaning analyst earnings revisions are flat-lining and thus failing to keep pace with more vibrant emerging andor developing markets In absolute terms weaker earn-ings exert upward pressure on valuations Yet a liquidity-driven rally can still push valuations higher
Imbalance The liquidity-centric imbalance at the heart of Chinarsquos bull market leaves it exposed and vulnerable to correction in our opinion An environment of tightening monetary policy decel-erating growth and stretched valuations are generally not conducive to sustained price appreciation In fact in Chinarsquos case incrementally greater inflows of liquidity will be required to sustain existing price levels At least from an onshore per-spective the music will stop
Intriguingly attention is now turning to foreign investor inflows which hitherto have been muted But there are reasons why a rebound in sentiment might be expected including improving geopolitical sentiment with the new administration in the USA and expectation of CNY appreciation which should boost returns for USD investors Overall a reacceleration in flows could be a key factor in keeping Chinese markets supported
Sound diversification is key On balance at least for the next few months we remain overweight Chinese equities in a portfolio context Our funda-mental concerns are medium-term in nature while near-term risks ndash supported by liquidity ndash are tilted toward further price gains In line with our House View we emphasize the value of well-diversified exposure to EM equities overall
(15022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 13
Fixed income
EM HC corporate bonds preferred The ongoing reflationary path is going to support long-dated yields warranting a con-tinued cautious stance on government bonds
We reduce our allocation to EM HC sovereign bonds to benchmark weight We no longer see IG credit as attractive and prefer EM HC corporate bonds
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
Global benchmark yields have continued to trend higher in the last few weeks supported by reflationary expectations Despite the marketsrsquo repricing of more US fiscal stimulus the Federal Reserve (Fed) kept control of front-end rates expectations with the US yield curve further steepening as a result Going forward long-dated inflation expectations are still expected to be the main driver of nominal benchmark yields Both should moderately rise in tandem particularly in the USA With other developed regions following the same reflationary theme albeit with a lag we anticipate that global government bonds will remain an unattractive investment We therefore keep exposure below benchmark allocations in portfolios Furthermore we keep a relatively short duration stance in US Eurozone and Swiss bond markets and prefer US inflation-linked bonds over comparable nominal govern-ment bonds
IG credit no longer attractive prefer EM HC corporate bonds We no longer think that global investment grade (IG) credit offers attractive return potential While monetary policy re-mains supportive IG spreads are already at historical lows and no longer offer enough compensation against the further rise in benchmark yields we expect Global high yield (HY) credit market returns should remain attractive thanks to policy support and the economic recovery we project However we
see limited further spread compression potential in US HY and European HY from the current historical lows We believe emerging market hard currency (EM HC) corporate bonds are most attractive within credit with pro-cyclical emerging markets benefiting from the global growth rebound expected this year At the same time and due to their comparatively low benchmark duration EM HC corporate bonds are less sensitive to higher US government yields than global IG EM HC corporates on average provide similar credit fundamentals to developed market credit but offer more attractive spreads amid the current reflationary environment Also we see more opportunities in EM HC HY corporates particularly in Asia where spreads offer a premium of around 200 bp over US HY
EM HC sovereigns reduced to benchmark allocation EM HC sovereign bond valuations are currently tight with spreads not far off the lows reached after the great financial crisis Inflation has largely bottomed out due to base effects food and energy prices and there is limited scope for further monetary stimulus EM HC sovereign bond spreads have a high correlation with US Treasury yields With the latter still on the rise risks to EM HC sovereign bonds are increasing Positioning is at record highs and flows continue to acceler-ate This suggests that a further strong performance is less likely Given these considerations we have decided to reduce EM HC sovereign bonds to benchmark allocation in our portfolios (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 14
Equities
Remain constructive on globalequities We maintain our attractive return outlook for global equities with a preference for emerging markets UK Germany financials materials and health care
After a double-digit earnings decline in 2020 global earnings are set to recover sharply this year
Marc Haumlfliger Global Equity Strategist
We maintain our attractive return outlook for global equities on the back of supportive monetary conditions vaccine roll-outs growing stimulus prospects and our constructive outlook for economic and earnings growth While traditional valuation metrics remain elevated they look less stretched relative to other asset classes such as global treasury bonds The earnings recovery is key to our thesis of attractive returns for global equities as we do not expect further re-ratings (ie higher multiples) to drive equity markets going forward So far the Q4 earnings results underpin our view that companies have learned how to deal with the current circumstances given earnings results are mostly surpassing projections As a result of this strong showing global EPS growth rates (YoY) will likely be positive again for the Q4 2020 earnings season After an overall double-digit earnings decline in 2020 global earnings are set to recover sharply this year ndash particularly in cyclical market segments Risks to our constructive view on equities come from COVID-19 concerns (mutation potential vaccine disappointments) disappointing fiscal stimulus or earlier-than-expected comments about a withdrawal of mon-etary stimulus
In a portfolio context we keep our overweight in emerging market (EM) equities as we remain bearish on the USD ex-pect higher commodity prices and see the re-opening environ-ment as positive for EM equities We expect cyclical segments that lagged the broader equity benchmark in 2020 ndash such as the UK Germany and financials ndash to catch up amid the im-proved economic outlook and rising inflation expectations
Latest view changes In developed market equities we turn neutral from outperform on Hong Kong equities as a result of their strong performance in recent weeks and increasing macro headwinds In EM eq-uities we now expect South African equities to outperform driven by attractive valuation a strong earnings picture and an accommodative central bank We no longer expect Indian equities to underperform and turn neutral following the gov-ernmentrsquos pro-growth budget announcement an improved macroeconomic outlook and earnings estimates being revised higher at a faster pace than peers
Earnings expected to recover in 2021
Last data point 09022020 Historical performance indications and financial market
scenarios are not reliable indicators of current or future performance Source Factset
Estimates Credit Suisse
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 15
Alternative investments
Still positive on commodities Commodity performance has been strong year-to-date A near-term pause is possible but we retain a positive view and prefer diversified exposure with a cyclical bias
Despite recent resilience we expect listed real estate to lag equities In hedge funds we highlight opportunistic long-short discretionary and EM macro managers as well as private credit
Jelena Kucenko Head of Alternative Investments
Stefan Graber Head of Commodity Strategy
Hedge funds Be selective Hedge funds were flat in January as short covering activity at month-end erased initial gains Fundamental long-short and macro funds suffered the most while relative value and event driven were more resilient Our Trading Conditions Barometer is in favorable territory Combined with regional and sector divergences arising from vaccine rollouts compli-ance with environmental social and governance criteria and record levels of capital-market activity this creates opportuni-ties for long-short managers We also highlight private credit strategies with a focus on consumer loans and mid-market companies which should benefit from resilient household fi-nances and a post-pandemic recovery Discretionary and emerging market (EM) macro managers are preferred in case of market setbacks
Commodities Providing cyclicality and inflation hedge Commodities started 2021 on a strong note focusing on positive growth expectations instead of near-term COVID-19 concerns A near-term pause is possible as the latest gains came ahead of an anticipated reacceleration in industrial ac-tivity That said improved bottom-up fundamentals have flipped aggregate curves into backwardation translating into positive roll yields which may attract additional investor inter-est Commodities also provide a hedge should inflation sur-prise to the upside We retain our positive view on the asset class and favor diversified exposure with a cyclical tilt (oil energy) For oil the March OPEC+ meeting is the next event
risk and a potential source of volatility as the group will likely discuss supply hikes We still think that gold offers diversifica-tion and some upside but the bull run could be maturing as yield curves have started to steepen We thus tone down our optimism on the metal
Real estate Expected to underperform equities Listed real estate slightly outperformed global equities in January thanks to strong earnings results in logistics and a rebound in oversold retail companies as short sellers covered their positions But we believe that further upside potential for the sector is limited as the impact of lockdowns is not yet reflected in landlordsrsquo share prices in our view Additionally valuations in structurally resilient sectors such as logistics and data centers already reflect fundamentals This and the prospect of higher long-term yields and an increased risk of US regulatory headwinds reinforce our negative sector view
Private equity Backdrop still positive Robust investment activity at the end of last year pushed pri-vate equity deal values higher but the asset class still offers better priced opportunities than public markets Dry powder ndash committed but uninvested capital ndash is at a record of over USD 2 trn with subdued fundraising activity expected to re-bound as investors increase commitments in 2021 according to data provider Preqin The expected economic rebound is supportive for the asset class but rising long-term interest rates pose risk to financing costs We highlight strategies offering high growth with limited leverage (venture capital growth capital) and secondary funds which can exploit market opportunities tactically generating excess returns over time
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 16
Foreign exchange
Keep favoring cyclical currencies We maintain a short USD bias and prefer commodity and cyclical currencies such as the EUR GBP or SEK
Within our positive emerging market stance we particularly like the CNY KRW BRL and RUB
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
The USD was broadly flat against other major currencies over the last month Investorsrsquo focus on US fiscal stimulus and an expected rise in US inflation allowed for some normalization in previously large USD short positions While the repricing of near-term growth expectations also in light of a more rapid US vaccination campaign created temporary USD resilience we think this improvement is likely partly reflected in the USD already We maintain that as the Federal Reserve (Fed) keeps short-term rates close to zero for longer there is little room for sustained gains in the USD Moreover US fiscal stimulus will not only deteriorate fiscal balances but also deepen the current account deficit This will also benefit the global econ-omy through improved global trade and sentiment which should weigh on the USD Uncertainties relating to new COVID-19 variants and extended USD short positioning re-main a risk in the short term
Constructive on cyclical currencies A slow start to vaccine rollouts and renewed political risks in Italy somewhat dented sentiment toward the EUR in early February Even so the single currency remained stable vs the USD The Eurozone is facing a delayed recovery but this is consensus already and likely temporary in nature With political risks now subsiding the EU recovery fund operational in the next quarter and the global growth recovery benefitting the export-oriented Eurozone we think EURUSD can gain some further ground and target 124 in 3M Elsewhere in Europe we also remain positive on the SEK and the GBP
vs the USD With global reflation set to continue and com-modity prices likely to remain supported through the ongoing rebalancing we still favor commodity currencies in particular the NZD CAD and NOK
BRL RUB CNY and KRW preferred Emerging market (EM) currencies were broadly range-bound on an index level over the last month but with significant re-turn dispersion across currencies The main arguments sup-porting our attractive view on EM FX remain in place We continue to see further scope for a broad appreciation of EM FX versus the USD Even though the EM economic recovery has peaked economic activity still looks solid relative to de-veloped markets External positions remain in good shape and non-resident flows are still supportive In addition with inflation bottoming and food prices increasing scope for dovish EM central bank surprises seems to be exhausted This should be favorable for EM carry versus the USD
The RUB BRL CNY and KRW remain our preferred curren-cies in EM Both the RUB and BRL are cheaply valued Addi-tionally the RUB should profit from attractive risk-adjusted carry and the BRL from more hawkish central bank expecta-tions In Asia we remain positive on the CNY and KRW and neutral on the other Asian FX We lower our 3M USDCNY target to 635 but keep our 12M target at 625 Our USDKRW targets remain unchanged at 1060 and 1010 in 3M and 12M respectively We retain a mild downward bias on the other USDAsia pairs expecting broad USD weak-ness (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 17
Forecasts
At a glance More information on the forecasts and estimates is available Credit Selected indices on request Past performance is not an indicator of future
Yield Spread Duration 3M TR 12M TR fore-performance Performance can be affected by commissions () (bp) (years) forecast cast fees or other charges as well as exchange rate fluctuations BC Global Aggregate 091 33 731 -010 010
BC Global Treasuries 058 9 862 -030 -050
BC Global IG Corp 141 94 735 033 130 Central bank rate10-year government bonds BC Global HY Corp 429 378 416 062 247
CB rate 10Y JPM EMBI Global Di- 480 344 764 032 126 yield versified HC
in Spot 3M 12M Spot 3M 12M
CHF -075 -075 -075 -026 -030 -030 BC = Barclays Capital IG= Investment Grade JPM = JP Morgan (EMBI+) Index data as of 1522021 Forecast as on 1522021
EUR -050 -050 -050 -035 -030 -030 These forecasts are no reliable indicators of future performance Source Bloomberg
USD 013 000-025 000-025 130 140 150 Credit Suisse GBP 010 010 010 062 050 060
AUD 010 010 010 139 130 140
JPY -010 -010 -010 010 010 010 Foreign exchange
Spot 3M 12M Spot rates are closing prices as of 1622021 Forecast date 1122021 These
EURUSD 121 124 125 forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC USDCHF 089 087 088
EURCHF 108 108 110
USDJPY 10594 10200 10000
Equities EURGBP 087 087 086
GBPUSD 139 143 145 Index Spot PE Div y 3M 12M () AUDUSD 078 078 079
MSCI AC World 1679 202 22 1690 1790 USDCAD 126 123 120
US SampP 500 3933 234 21 3950 4150 EURSEK 1004 1010 1020
Eurostoxx 50 3726 181 26 3700 3850 EURNOK 1016 1020 1020
UK FTSE 100 6749 143 43 6700 7000 EURPLN 449 457 459
Japan Topix 1965 185 21 1940 1970 USDCNY 646 635 625
Australia SampPASX 6917 207 38 6900 7150 USDSGD 132 131 128
200 USDKRW 109898 106000 101000
Switzerland SMI 10908 186 28 10950 11400 USDINR 7264 7270 7200
MSCI Emerging Mar- 190621 166 22 194000 207000 USDBRL 538 525 530 kets USDMXN 1994 2050 2150
Prices as of 1622021 Forecast as on 1122021 Gross return (incl dividends) Spot rates are as of 1722021 These forecasts are no reliable indicators of future performance Source Bloomberg These forecasts are no reliable indicators of future performance Source Bloomberg Datastream Credit SuisseIDC Credit SuisseIDC
Commodities Real GDP growth and inflation Spot 3M 12M GDP Inflation
Gold (USDoz) 1793 1900 2000 growth
Silver (USDoz) 273 27 30 in 2020 2021 2022 2020 2021 2022
Platinum (USDoz) 12624 1300 1250 CH -32 35 20 -07 03 02
Palladium (USDoz) 2390 2400 2500 EMU -72 50 42 03 06 10
Copper (USDton) 8416 8300 7900 USA -35 57 35 12 20 21
WTI Crude Oil (USDbbl) 600 60 60 UK -100 53 75 09 14 18
Bloomberg Commodity index 1815 181 186 Australia -20 35 32 08 15 15
Japan -49 17 19 -02 01 03
Spot rates are as of 1722021 forecast as on 1122021 China 23 71 52 25 11 17 These forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC Last forecast update 10022021
These forecasts are no reliable indicators of future performance Source Bloomberg Credit Suisse
(17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 18
Glossary
Risk warnings
Emerging markets Emerging markets are located in countries that possess one or more of the following characteristics a certain degree of political instability relatively unpredictable financial markets and economic growth patterns a financial market that is still at the development stage or a weak economy Emerging market investments usually result in higher risks as a result of political economic credit exchange rate market liquidity legal settlement market shareholder and creditor risks
Hedge funds Regardless of structure hedge funds are not limited to any particular investment discipline or trading strategy and seek to profit in all kinds of markets by using leverage derivative instruments and speculative investment strategies that may increase the risk of investment loss
Commodity investments Commodity transactions carry a high degree of risk and may not be suitable for many private investors The extent of loss due to market movements can be substantial or even result in a total loss
Real estate Investors in real estate are exposed to liquidity foreign currency and other risks including cyclical risk rental and local market risk as well as environmental risk and changes to the legal situation
Currency risks Investments in foreign currencies involve the additional risk that the foreign currency might lose value against the investorrsquos reference currency
Equity risk Equities are subject to market forces and hence fluctuations in value which are not entirely predictable
Market risk Financial markets rise and fall based on economic conditions inflationary pressures world news and business-specific reports While trends may be detected over time it can be difficult to predict the direction of the market and individual stocks This variability puts stock investments at risk of losing value
High Yield bond risk High Yield Bonds are typically rated below investment grade or are unrated and as such are often subject to a higher risk of issuer default
Perpetual Bond risk Perpetual Bonds have no maturity date and therefore the Interest pay-out depends on the viability of the issuer in the very long term
Subordinated Bond risk In case of liquidation of the issuer investors can only get back the principal after other senior creditors are paid
Risk of Bonds with variable deferral of interest terms Investors would face uncertainty over the amount and time of the interest payments to be received
Callable bond risk Investors face reinvestment risk when the issuer exercises its right to redeem the bond before it matures
Risk of Bonds with extendable maturity date Investors would not have a definite schedule of principal repayment
Convertible or exchangeable bond risk Investors are subject to both equity and bond investment risk
Cocos risk The bond may be written-off fully or partially or converted to common stock on the occurrence of a trigger event
Explanation of indices frequently used in reports
Index Comment
Australia SampPASX 200 SampPASX 200 is an Australian market-capitalization-weighted and float-adjusted stock index calculated by Standard and Poors
BC High Yield Corp USD The US Corporate High Yield Index measures USD-denominated non-investment grade fixed-rate and taxable corporate bonds The index is calculated by Barclays
BC High Yield Pan EUR The Euro Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate EUR The US Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate USD The IG Corporate Index tracks the fixed-rate investment-grade dollar-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
Canada SampPTSX comp The SampPTSX composite index is the Canadian equivalent of the SampP 500 Index in the USA The index contains the largest stocks traded on the Toronto Stock Exchange
Consumer Confidence Indices Consumer Confidence Indices (CCIs) are based on surveys of consumers spending intentions and economic situations as well as their concerns and expectations for the immediate future
CS Hedge Fund Index The Credit Suisse Hedge Fund Index is compiled by Credit Suisse Hedge Index LLC It is an asset-weighted hedge fund index and includes only funds as opposed to separate accounts The index reflects performance net of all hedge fund component performance fees and expenses
CS LSI ex govt CHF The Liquid Swiss Index ex govt CHF is a market-capitalized bond index representing the most liquid and tradable portion of the Swiss bond market excluding Swiss government bonds The index is calculated by Credit Suisse
DAX The German Stock Index stock represents 30 of the largest and most liquid German companies that trade on the Frankfurt Exchange
DXY A measure of the value of the US dollar relative to the majority of its most important trading partners The US Dollar Index is similar to other trade-weighted indices which also use the exchange rates from the same major currencies
Eurostoxx 50 Eurostoxx 50 is a market-capitalization-weighted stock index of 50 leading blue-chip companies in the Eurozone
FTSE EPRANAREIT Global Real Estate Index Series The FTSE EPRANAREIT Global Real Estate Index Series is designed to represent general trends in eligible real estate equities worldwide
Hedge Fund Barometer The Hedge Fund Barometer is a proprietary Credit Suisse scoring tool that measures market conditions for hedge fund strategies It comprises four components liquidity volatility systemic risks and business cycle
Japan Topix TOPIX also known as the Tokyo Stock Price Index tracks all large Japanese companies listed in the stock exchanges first section The index calculation excludes temporary issues and preferred stocks
JPM EM hard curr USD The Emerging Market Bond Index Plus tracks the total return of hard-currency sovereign bonds across the most liquid emerging markets The index encompasses US-denominated Brady bonds (dollar-denominated bonds issued by Latin American countries) loans and Eurobonds
JPM EM local curr hedg USD The JPMorgan Government Bond Index tracks local currency bonds issued by emerging market governments across the most accessible markets for international investors
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 19
MSCI AC AsiaPacific The MSCI All Country Asia Pacific Index captures large and mid cap representation across 5 developed market countries and 8 emerging markets countries in the Asia Pacific region With 1000 constituents the index covers approximately 85 of the free float-adjusted market capitalization in each country
MSCI AC World The MSCI All Country World Index captures large and mid cap representation across 23 developed markets and 23 emerging market countries With roughly 2480 constituents the index covers around 85 of the global investable equity opportunity set
MSCI Emerging Markets MSCI Emerging Markets is a free-float-weighted Index designed to measure equity market performance in global emerging markets The index is developed and calculated by Morgan Stanley Capital International
MSCI EMU The MSCI EMU Index (European Economic and Monetary Union) captures large and mid cap representation across the 10 Developed Markets countries in the EMU With 237 constituents the index covers approximately 85 of the free float-adjusted market capitalization of the EMU
MSCI Europe The MSCI Europe Index captures large and mid cap representation across 15 developed markets countries in Europe With 442 constituents the index covers approximately 85 of the free float-adjusted market capitalization across the European developed markets equity universe
MSCI UK The MSCI United Kingdom Index is designed to measure the performance of the large and mid cap segments of the UK market With 111 constituents the index covers approximately 85 of the free float-adjusted market capitalization in the UK
MSCI World MSCI World is an index of global equity markets developed and calculated by Morgan Stanley Capital International Calculations are based on closing prices with dividends reinvested
OECD Composite Leading Indicators OECD Composite Leading Indicators (CLIs) are designed to provide early signals of turning points in business cycles with components that measure early stages of production respond to changes in economic activity and are sensitive to expectations of future activity
Purchasing Managers Indices Purchasing Managers Indices (PMIs) are economic indicators derived from monthly surveys of private-sector companies The two principal producers of PMIs are Markit Group which conducts PMIs for over 30 countries worldwide and the Institute for Supply Management (ISM) which conducts PMIs for the United States The indices include additional sub-indices for manufac-turing surveys such as new orders employment exports stocks of raw materials and finished goods prices of inputs and finished goods and services
Russell 1000 Growth Index The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe based on 1000 large-cap companies with higher price-to-book ratios and higher forecast growth values
Russell 1000 Index The Russell 1000 Index is a stock market index that represents the highest-ranking 1000 stocks in the Russell 3000 Index (encompassing the 3000 largest US-traded stocks with the underlying companies all incorporated in the USA) and representing about 90 of the total market capitalization of that index The Russell 1000 Index has a weighted average market capitalization of USD 81 billion and the median market capitalization is approximately USD 46 billion
Russell 1000 Value Index The Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe based on 1000 large-cap companies with lower price-to-book ratios and lower expected growth values
Switzerland SMI The Swiss Market Index is made up of 20 of the largest companies listed of the Swiss Performance Index universe It represents 85 of the free-float capitalization of the Swiss equity market As a price index the SMI is not adjusted for dividends
UK FTSE 100 FTSE 100 is a market-capitalization-weighted stock index that represents 100 of the most highly capitalized companies traded on the London Stock exchange The equities have an investibility weighting in the index calculation
US SampP 500 Standard and Poors 500 is a capitalization-weighted stock index representing all major industries in the USA which measures the performance of the domestic economy through changes in the aggregate market value
Abbreviations frequently used in reports
Abb Description Abb Description
3612 MMA 3612 month moving average IMF International Monetary Fund
AI Alternative investments LatAm Latin America
APAC Asia Pacific Libor London interbank offered rate
bbl barrel m bd Million barrels per day
BI Bank Indonesia M1 A measure of the money supply that includes all physical money such as coins and currency as well as demand deposits checking accounts and negotiable order of withdrawal accounts
BoC Bank of Canada M2 A measure of money supply that includes cash and checking deposits (M1) as well as savings deposits money market mutual funds and other time deposits
BoE Bank of England M3 A measure of money supply that includes M2 as well as large time deposits institutional money market funds short-term re-purchase agreements and other larger liquid assets
BoJ Bank of Japan MampA Mergers and acquisitions
bp Basis points MAS Monetary Authority of Singapore
BRIC Brazil Russia China India MLP Master Limited Partnership
CAGR Compound annual growth rate MoM Month-on-month
CBOE Chicago Board Options Exchange MPC Monetary Policy Committee
CFO Cash from operations OAS Option-adjusted spread
CFROI Cash flow return on investment OECD Organisation for Economic Co-operation and Development
DCF Discounted cash flow OIS Overnight indexed swap
DM Developed Market OPEC Organization of Petroleum Exporting Countries
DMs Developed Markets PB Price-to-book value
EBITDA Earnings before interest taxes depreciation and amortization PE Price-earnings ratio
ECB European Central Bank PBoC Peoples Bank of China
EEMEA Eastern Europe Middle East and Africa PEG PE ratio divided by growth in EPS
EM Emerging Market PMI Purchasing Managers Index
EMEA Europe Middle East and Africa PPP Purchasing power parity
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 20
EMs Emerging Markets QE Quantitative easing
EMU European Monetary Union QoQ Quarter-on-quarter
EPS Earnings per share rhs right-hand side (for charts)
ETF Exchange traded funds RBA Reserve Bank of Australia
EV Enterprise value RBI Reserve Bank of India
FCF Free cash flow RBNZ Reserve Bank of New Zealand
Fed US Federal Reserve REIT Real estate investment trust
FFO Funds from operations ROE Return on equity
FOMC Federal Open Market Committee ROIC Return on invested capital
FX Foreign exchange RRR Reserve requirement ratio
G10 Group of Ten SAA Strategic asset allocation
G3 Group of Three SDR Special drawing rights
GDP Gross domestic product SNB Swiss National Bank
GPIF Government Pension Investment Fund TAA Tactical asset allocation
HC Hard currency TWI Trade-Weighted Index
HY High yield VIX Volatility Index
IBD Interest-bearing debt WTI West Texas Intermediate
IC Credit Suisse Investment Committee YoY Year-on-year
IG Investment grade YTD Year-to-date
ILB Inflation-linked bond Personal Consumption An indicator of the average increase in prices for all domestic Expenditure (PCE defla- personal consumption tor)
Currency codes frequently used in reports
Code Currency Code Currency
ARS Argentine peso KRW South Korean won
AUD Australian dollar MXN Mexican peso
BRL Brazilian real MYR Malaysian ringgit
CAD Canadian dollar NOK Norwegian krone
CHF Swiss franc NZD New Zealand dollar
CLP Chilean peso PEN Peruvian nuevo sol
CNY Chinese yuan PHP Philippine peso
COP Colombian peso PLN Polish złoty
CZK Czech koruna RUB Russian ruble
EUR Euro SEK Swedish kronakronor
GBP Pound sterling SGD Singapore dollar
HKD Hong Kong dollar THB Thai baht
HUF Hungarian forint TRY Turkish lira
IDR Indonesian rupiah TWD New Taiwan dollar
ILS Israeli new shekel USD United States dollar
INR Indian rupee ZAR South African rand
JPY Japanese yen
Important information on derivatives
Pricing Option premiums and prices mentioned are indicative only Option premiums and prices can be subject to very rapid changes The prices and premiums mentioned are as of the time indicated in the text and might have changed substantially in the meantime
Risks Derivatives are complex instruments and are intended for sale only to investors who are capable of understanding and assuming all the risks involved Investors must be aware that adding option positions to an existing portfolio may change the characteristics and behavior of that portfolio substantially A portfoliorsquos sensitivity to certain market moves can be heavily impacted by the leverage effect of options
Buying calls Investors who buy call options risk the loss of the entire premium paid if the underlying security trades below the strike price at expiration
Buying puts Investors who buy put options risk loss of the entire premium paid if the underlying security finishes above the strike price at expiration
Selling calls Investors who sell calls commit themselves to sell the underlying for the strike price even if the market price of the underlying is substantially higher Investors who sell covered calls (own the underlying security and sell a call) risk limiting their upside to the strike price plus the upfront premium received and may have their security called away if the security price exceeds the strike price of the short call Additionally the investor has full downside participation that is only partially offset by the premium received upfront If investors are forced to sell the underlying they might be subject to taxing Investors shorting naked calls (ie selling calls but without holding the underlying security) risk unlimited losses of security price less strike price
Selling puts Put sellers commit to buying the underlying security at the strike price in the event the security falls below the strike price The maximum loss is the full strike price less the premium received for selling the put
Buying call spreads Investors who buy call spreads (buy a call and sell a call with a higher strike) risk the loss of the entire premium paid if the underlying trades below the lower strike price at expiration The maximum gain from buying call spreads is the difference between the strike prices less the upfront premium paid
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 21
Selling naked call spreads Selling naked call spreads (sell a call and buy a farther out-of-the-money call with no underlying security position) Investors risk a maximum loss of the difference between the long call strike and the short call strike less the upfront premium taken in if the underlying security finishes above the long call strike at expiration The maximum gain is the upfront premium taken in if the security finishes below the short call strike at expiration
Buying put spreads Investors who buy put spreads (buy a put and sell a put with a lower strike price) also have a maximum loss of the upfront premium paid The maximum gain from buying put spreads is the difference between the strike prices less the upfront premium paid
Buying strangles Buying strangles (buy put and buy call) The maximum loss is the entire premium paid for both options if the underlying trades between the put strike and the call strike at expiration
Selling strangles or straddles Investors who are long a security and short a strangle or straddle risk capping their upside in the security to the strike price of the call that is sold plus the upfront premium received Additionally if the security trades below the strike price of the short put investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short put and will also experience losses in the security position if they owns shares The maximum potential loss is the full value of the strike price (less the value of the premium received) plus losses on the long security position Investors who are short naked strangles or straddles have unlimited potential loss since if the security trades above the call strike price investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short call In addition they are obligated to buy the security at the put strike price (less upfront premium received) if the security fin-ishes below the put strike price at expiration
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 22
Important information on mutual funds Fees and charges etc Different types of fees and commissions (subscription fee amount which must be retained in trust assets repurchase fee etc) are charged when investment trustsfunds are purchased and sold In addition apart from these fees and commissions trust and management fees and other fees (audit fee trust administrative charges carried interest etc) are charged and borne by you through your trust asset Fees and commissions borne by you will be a sum of these amounts Such fees and commissions vary depending on the investment trustfund and depending on the investment status and therefore we cannot provide specific amounts or calculation methods
For detailed information on fees and commissions etc of each re-spective investment trustfund please refer to the pre-contract documents (prospectus and other supplementary documents)
Important information on dividends bull Dividends are different to interest on deposits and are paid from the net asset value of investment trustsfunds Therefore when dividends are paid the base value (net asset value per unit) will decrease by an amount equivalent to the amount paid
bull Dividends may be paid exceeding the profit earned during the calculation period (trading profit including profits of dividends etc after expenses) In this case the base value (net asset value per unit) on the settlement date in this period will decrease compared to that on the settlement date in the previous period Also the level of dividends does not always reflect the rate of return for the investment trustfund during the calculation period
bull A part or all of dividends may be virtually equivalent to some repayment of the principal depending on the purchase price of the investment trustfund by an investor The same can be applied to a case that an increase in the base value (net asset value per unit) is smaller than a dividend amount due to the investment status after purchase of the investment trustfund
Please refer to the prospectus for details
Explanation of major risks (description pursuant to Ar-ticle 37 (Regulation on Advertising etc) of the Financial Instruments and Exchange Act etc) The risks described below are a summary of some general risks of investment trustsfunds (risks which have an impact on net asset value) and do not cover all risks Please refer to the pre-trade documents (prospectus and other supplementary documents)
Price volatility risk Investment trustsfunds invest mainly in equities bonds and derivative products etc The value of the investment trustfund will go up or down due to increases or decreases in the prices of such investments Further the value of such investments will be impacted by political and economic factors the financial standing of an issuer market demand and supply interest rates and other factors
Foreign currency risk Investment trustsfunds which invest in equities or bonds etc denominated in foreign currencies entail a foreign currency risk and the base value (or net asset value) of investment trustsfunds may change depending on the currency exchange rate Even when you do not experience a loss of invest-ment principal when calculated in the base currency you may suffer a loss at conversion into Japanese yen due to fluctuations in exchange rates Fur-thermore investment trustsfunds which utilize currency trading among multiple currencies may incur costs due to such currency trading depending on the difference in short-term interest rates between the currencies and you may suffer a loss
Credit risk For investment trustsfunds which invest in equities or bonds etc the prices of these investments may increase and decrease due to changes in the business or financial standing of the issuer and other factors and you may suffer a loss
Risk pertaining to liquidity Where there is sudden high volume in a particular investment or when sudden changes in the external environment surrounding markets triggers a sudden downturn in a market or period of market turmoil etc investments may not be flexibly traded In such a case a decline in the price of the investment may impact the base value (or net asset value) of the investment trust result-ing in a loss Further the management company may decide to stop calcu-lation of net asset prices or suspend sell or redemption claims
In addition for certain types of investment trustfund there is a risk that particular investments may be designated to a separate account (or side pocket) due to a lack of liquidity When a separate account is utilized by in-vestment trustsfunds restrictions may apply as to when such investments can be liquidated through a sell or redemption claim and there may be a re-striction in the timing or form of redemption claim permissible In particular for Fund of Fund investments when an investment trustfund makes an in-vestment without time limit in another fund the investment trustfund may be influenced by investment results in the other funds
Risk associated with an outflow of money received from sales orders When there is a large volume of sale orders in a short period of time the investment trustfund may be forced to sell structured securities at a lower rate than the prevailing market price to refund monies to investors and as a result you may suffer a loss Also alternative investment trustsfunds gen-erally have a limitation in selling or cashing out the investment compared to traditional investment trustsfunds Many alternative investment trustsfunds only accept a sell or redemption order on a monthly or quarterly basis and therefore you may not be able to rapidly exit the investment in for example times of economic uncertainty
Redemption risk Investment trustsfunds may become subject to mandatory redemption due to a certain reason For details please refer to the pre-trade documents (prospectus and other supplementary documents) before subscription
Concentration risk Investment trustsfunds which invest in a certain investment product or similar investment product group may significantly decrease in value (net asset value) under severe market circumstances
Country risk When changes in political economic and social conditions in investment destination countries and regions cause a dislocation in financial and security markets security prices may significantly change Also investments in emerging markets involve unique risks including small market size and trade volume political and social uncertainties undeveloped market infrastructure such as a clearing system undeveloped information disclosure system and legal system by supervising authorities large fluctuations in exchange rates restrictions on currency remittance to foreign countries and other factors and therefore may have larger price fluctuations compared to investments in major developed markets
Important information on non-Japanese stocks Please refer to the issuer information when you purchase non-Japanese stocks
Disclaimer This material is published solely for information purposes and is intended for the recipientrsquos sole use Credit Suisse does not represent or warrant its ac-curacy or completeness The material is not directly or indirectly intended for any investment solicitation and does not constitute an invitation or offer to conclude a transaction contract for financial instruments etc Credit Suisse accepts no liability for loss arising from the use of the information in this material It is recommended that you consult with the third party professional advisors as to legal or tax issues etc This material should not be reproduced or quoted without the prior express written consent of Credit Suisse The information and opinions expressed in this material were produced by Private Banking Division at Credit Suisse as of the date of writing and are subject to change without notice Views expressed in respect of particular investment products in this material may be different from or inconsistent with the ob-
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 23
servations and views of other divisions besides Private Banking due to the differences in evaluation criteria This material is solely distributed in Japan by Credit Suisse Securities (Japan) Limited Credit Suisse Securities (Japan) Limited will not distribute or forward it outside Japan
You may incur a loss as a result of fluctuations in stock prices if you invest in stocks In relation to foreign stocks you may incur a loss in such stocks due to foreign exchange rate fluctuations etc The market value of bonds is affected by interest rate fluctuations or changes in the financial standing of any issuer etc as such you may incur a loss if you sell such bonds before they are redeemed In relation to foreign bonds you may incur a loss in such bonds due to foreign exchange rate fluctuations etc The net asset value of mutual funds can fall as well as rise due to price changes of underlying stocks bonds etc and foreign exchange rate fluctuations and this may cause you to incur a loss
Structured securities and derivatives are complex instruments 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 of any structured security or transaction may be affected by changes in financial market conditions reference indices volatility and the credit quality of any issuer or reference issuer
Furthermore there are structured securities on which you may incur a loss since the redemption amounts are linked with fluctuations in reference indices etc There are also derivatives on which potential losses may exceed the amount of the initial investment Commission rates for any transactions will be as per the rates agreed between Credit Suisse and you For transactions conducted on a principal to principal basis between Credit Suisse and you the purchase or sale price will be the total consideration Transactions con-
ducted on a principal to principal basis including over the counter derivatives transactions will be quoted as a purchasebid price or selloffer price and for which a difference or spread may exist Charges in relation to transactions will be agreed prior to dealing as per our requirements under the Financial Instruments and Exchange Law
By purchasing financial instruments etc you may incur a loss or a loss in excess of the principal as a result of fluctuations in market prices or other financial indices etc Please read carefully the Pre-Contract Documentation provided for an explanation of associated risks and commissions etc of individual financial instruments etc prior to purchase Please contact your Relationship Manager if you have any questions
UNITED STATES NEITHER THIS REPORT NOR ANY COPY THEREOF MAY BE SENT TAKEN INTO OR DISTRIBUTED IN THE UNITED STATES OR TO ANY US PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE US SECURITIES ACT OF 1933 AS AMENDED)
Credit Suisse Securities (Japan) Limited Financial Instruments Dealer Di-rector-General of Kanto Local Finance Bureau (Kinsho) No 66 a member of Japan Securities Dealers Association Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association
Copyright copy 2021 Credit Suisse Group AG andor its affiliates All rights reserved
21C013A_IS_J
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 24
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Publisher Credit Suisse Private Banking amp Wealth Management Investment Solutions amp Products
Information about other Investment Solutions amp Products publications Internet httpsinvestmentcredit-suissecom
Intranet (for employees only) httpsisrcsintranet
Subscription (clients) Please contact your customer advisor to subscribe to this publication
Subscription (internal) For information on subscriptions please visit httpisrcsintranetsubscriptions
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 25
Special topic
Bullish hopes in Chinarsquos Year ofthe Ox Our positive view on equities remains in place We express it through a preference for emerging market particularly Chinese equities
After strong gains so far this year we challenge the quality and longevity of Chinarsquos bull market and explain why we remain optimistic
John William Huia Woods CIO APAC
Just ahead of Chinese New Year Chinarsquos benchmark Shanghai Composite Index surged to new highs for the year Chinarsquos strong market gains are fueled by a rush of excess liquidity the likes of which we have not seen since 2015 But experienced investors will know that a rising tide can just as easily ndash and quickly ndash turn into an ebbing tide particularly when fundamentals become unsupportive
Red flags In fact red flags are not hard to find Possibly the most im-portant observation is that Chinarsquos growth momentum has passed its peak and will likely decelerate into 2021 A decel-erating economy does not necessarily hurt a bull market but it does not necessarily help it either
Equally important is the view that Chinarsquos ndash increasingly less dovish ndash authorities are unlikely to further stimulate the economy It has been widely observed that they remain vigilant and concerned toward the possible formation of price bubbles in real and financial assets including equity markets
Indeed the Peoplersquos Bank of Chinarsquos willingness in late January 2021 to withdraw rather than add CNY 570 bn of liquidity from interbank markets ahead of the Chinese New Year suggests that a clear inflection point has been reached with monetary policy now normalizing after two years of stimulus and easy money
Amid decelerating economic growth corporate revenues are under pressure meaning analyst earnings revisions are flat-lining and thus failing to keep pace with more vibrant emerging andor developing markets In absolute terms weaker earn-ings exert upward pressure on valuations Yet a liquidity-driven rally can still push valuations higher
Imbalance The liquidity-centric imbalance at the heart of Chinarsquos bull market leaves it exposed and vulnerable to correction in our opinion An environment of tightening monetary policy decel-erating growth and stretched valuations are generally not conducive to sustained price appreciation In fact in Chinarsquos case incrementally greater inflows of liquidity will be required to sustain existing price levels At least from an onshore per-spective the music will stop
Intriguingly attention is now turning to foreign investor inflows which hitherto have been muted But there are reasons why a rebound in sentiment might be expected including improving geopolitical sentiment with the new administration in the USA and expectation of CNY appreciation which should boost returns for USD investors Overall a reacceleration in flows could be a key factor in keeping Chinese markets supported
Sound diversification is key On balance at least for the next few months we remain overweight Chinese equities in a portfolio context Our funda-mental concerns are medium-term in nature while near-term risks ndash supported by liquidity ndash are tilted toward further price gains In line with our House View we emphasize the value of well-diversified exposure to EM equities overall
(15022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 13
Fixed income
EM HC corporate bonds preferred The ongoing reflationary path is going to support long-dated yields warranting a con-tinued cautious stance on government bonds
We reduce our allocation to EM HC sovereign bonds to benchmark weight We no longer see IG credit as attractive and prefer EM HC corporate bonds
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
Global benchmark yields have continued to trend higher in the last few weeks supported by reflationary expectations Despite the marketsrsquo repricing of more US fiscal stimulus the Federal Reserve (Fed) kept control of front-end rates expectations with the US yield curve further steepening as a result Going forward long-dated inflation expectations are still expected to be the main driver of nominal benchmark yields Both should moderately rise in tandem particularly in the USA With other developed regions following the same reflationary theme albeit with a lag we anticipate that global government bonds will remain an unattractive investment We therefore keep exposure below benchmark allocations in portfolios Furthermore we keep a relatively short duration stance in US Eurozone and Swiss bond markets and prefer US inflation-linked bonds over comparable nominal govern-ment bonds
IG credit no longer attractive prefer EM HC corporate bonds We no longer think that global investment grade (IG) credit offers attractive return potential While monetary policy re-mains supportive IG spreads are already at historical lows and no longer offer enough compensation against the further rise in benchmark yields we expect Global high yield (HY) credit market returns should remain attractive thanks to policy support and the economic recovery we project However we
see limited further spread compression potential in US HY and European HY from the current historical lows We believe emerging market hard currency (EM HC) corporate bonds are most attractive within credit with pro-cyclical emerging markets benefiting from the global growth rebound expected this year At the same time and due to their comparatively low benchmark duration EM HC corporate bonds are less sensitive to higher US government yields than global IG EM HC corporates on average provide similar credit fundamentals to developed market credit but offer more attractive spreads amid the current reflationary environment Also we see more opportunities in EM HC HY corporates particularly in Asia where spreads offer a premium of around 200 bp over US HY
EM HC sovereigns reduced to benchmark allocation EM HC sovereign bond valuations are currently tight with spreads not far off the lows reached after the great financial crisis Inflation has largely bottomed out due to base effects food and energy prices and there is limited scope for further monetary stimulus EM HC sovereign bond spreads have a high correlation with US Treasury yields With the latter still on the rise risks to EM HC sovereign bonds are increasing Positioning is at record highs and flows continue to acceler-ate This suggests that a further strong performance is less likely Given these considerations we have decided to reduce EM HC sovereign bonds to benchmark allocation in our portfolios (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 14
Equities
Remain constructive on globalequities We maintain our attractive return outlook for global equities with a preference for emerging markets UK Germany financials materials and health care
After a double-digit earnings decline in 2020 global earnings are set to recover sharply this year
Marc Haumlfliger Global Equity Strategist
We maintain our attractive return outlook for global equities on the back of supportive monetary conditions vaccine roll-outs growing stimulus prospects and our constructive outlook for economic and earnings growth While traditional valuation metrics remain elevated they look less stretched relative to other asset classes such as global treasury bonds The earnings recovery is key to our thesis of attractive returns for global equities as we do not expect further re-ratings (ie higher multiples) to drive equity markets going forward So far the Q4 earnings results underpin our view that companies have learned how to deal with the current circumstances given earnings results are mostly surpassing projections As a result of this strong showing global EPS growth rates (YoY) will likely be positive again for the Q4 2020 earnings season After an overall double-digit earnings decline in 2020 global earnings are set to recover sharply this year ndash particularly in cyclical market segments Risks to our constructive view on equities come from COVID-19 concerns (mutation potential vaccine disappointments) disappointing fiscal stimulus or earlier-than-expected comments about a withdrawal of mon-etary stimulus
In a portfolio context we keep our overweight in emerging market (EM) equities as we remain bearish on the USD ex-pect higher commodity prices and see the re-opening environ-ment as positive for EM equities We expect cyclical segments that lagged the broader equity benchmark in 2020 ndash such as the UK Germany and financials ndash to catch up amid the im-proved economic outlook and rising inflation expectations
Latest view changes In developed market equities we turn neutral from outperform on Hong Kong equities as a result of their strong performance in recent weeks and increasing macro headwinds In EM eq-uities we now expect South African equities to outperform driven by attractive valuation a strong earnings picture and an accommodative central bank We no longer expect Indian equities to underperform and turn neutral following the gov-ernmentrsquos pro-growth budget announcement an improved macroeconomic outlook and earnings estimates being revised higher at a faster pace than peers
Earnings expected to recover in 2021
Last data point 09022020 Historical performance indications and financial market
scenarios are not reliable indicators of current or future performance Source Factset
Estimates Credit Suisse
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 15
Alternative investments
Still positive on commodities Commodity performance has been strong year-to-date A near-term pause is possible but we retain a positive view and prefer diversified exposure with a cyclical bias
Despite recent resilience we expect listed real estate to lag equities In hedge funds we highlight opportunistic long-short discretionary and EM macro managers as well as private credit
Jelena Kucenko Head of Alternative Investments
Stefan Graber Head of Commodity Strategy
Hedge funds Be selective Hedge funds were flat in January as short covering activity at month-end erased initial gains Fundamental long-short and macro funds suffered the most while relative value and event driven were more resilient Our Trading Conditions Barometer is in favorable territory Combined with regional and sector divergences arising from vaccine rollouts compli-ance with environmental social and governance criteria and record levels of capital-market activity this creates opportuni-ties for long-short managers We also highlight private credit strategies with a focus on consumer loans and mid-market companies which should benefit from resilient household fi-nances and a post-pandemic recovery Discretionary and emerging market (EM) macro managers are preferred in case of market setbacks
Commodities Providing cyclicality and inflation hedge Commodities started 2021 on a strong note focusing on positive growth expectations instead of near-term COVID-19 concerns A near-term pause is possible as the latest gains came ahead of an anticipated reacceleration in industrial ac-tivity That said improved bottom-up fundamentals have flipped aggregate curves into backwardation translating into positive roll yields which may attract additional investor inter-est Commodities also provide a hedge should inflation sur-prise to the upside We retain our positive view on the asset class and favor diversified exposure with a cyclical tilt (oil energy) For oil the March OPEC+ meeting is the next event
risk and a potential source of volatility as the group will likely discuss supply hikes We still think that gold offers diversifica-tion and some upside but the bull run could be maturing as yield curves have started to steepen We thus tone down our optimism on the metal
Real estate Expected to underperform equities Listed real estate slightly outperformed global equities in January thanks to strong earnings results in logistics and a rebound in oversold retail companies as short sellers covered their positions But we believe that further upside potential for the sector is limited as the impact of lockdowns is not yet reflected in landlordsrsquo share prices in our view Additionally valuations in structurally resilient sectors such as logistics and data centers already reflect fundamentals This and the prospect of higher long-term yields and an increased risk of US regulatory headwinds reinforce our negative sector view
Private equity Backdrop still positive Robust investment activity at the end of last year pushed pri-vate equity deal values higher but the asset class still offers better priced opportunities than public markets Dry powder ndash committed but uninvested capital ndash is at a record of over USD 2 trn with subdued fundraising activity expected to re-bound as investors increase commitments in 2021 according to data provider Preqin The expected economic rebound is supportive for the asset class but rising long-term interest rates pose risk to financing costs We highlight strategies offering high growth with limited leverage (venture capital growth capital) and secondary funds which can exploit market opportunities tactically generating excess returns over time
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 16
Foreign exchange
Keep favoring cyclical currencies We maintain a short USD bias and prefer commodity and cyclical currencies such as the EUR GBP or SEK
Within our positive emerging market stance we particularly like the CNY KRW BRL and RUB
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
The USD was broadly flat against other major currencies over the last month Investorsrsquo focus on US fiscal stimulus and an expected rise in US inflation allowed for some normalization in previously large USD short positions While the repricing of near-term growth expectations also in light of a more rapid US vaccination campaign created temporary USD resilience we think this improvement is likely partly reflected in the USD already We maintain that as the Federal Reserve (Fed) keeps short-term rates close to zero for longer there is little room for sustained gains in the USD Moreover US fiscal stimulus will not only deteriorate fiscal balances but also deepen the current account deficit This will also benefit the global econ-omy through improved global trade and sentiment which should weigh on the USD Uncertainties relating to new COVID-19 variants and extended USD short positioning re-main a risk in the short term
Constructive on cyclical currencies A slow start to vaccine rollouts and renewed political risks in Italy somewhat dented sentiment toward the EUR in early February Even so the single currency remained stable vs the USD The Eurozone is facing a delayed recovery but this is consensus already and likely temporary in nature With political risks now subsiding the EU recovery fund operational in the next quarter and the global growth recovery benefitting the export-oriented Eurozone we think EURUSD can gain some further ground and target 124 in 3M Elsewhere in Europe we also remain positive on the SEK and the GBP
vs the USD With global reflation set to continue and com-modity prices likely to remain supported through the ongoing rebalancing we still favor commodity currencies in particular the NZD CAD and NOK
BRL RUB CNY and KRW preferred Emerging market (EM) currencies were broadly range-bound on an index level over the last month but with significant re-turn dispersion across currencies The main arguments sup-porting our attractive view on EM FX remain in place We continue to see further scope for a broad appreciation of EM FX versus the USD Even though the EM economic recovery has peaked economic activity still looks solid relative to de-veloped markets External positions remain in good shape and non-resident flows are still supportive In addition with inflation bottoming and food prices increasing scope for dovish EM central bank surprises seems to be exhausted This should be favorable for EM carry versus the USD
The RUB BRL CNY and KRW remain our preferred curren-cies in EM Both the RUB and BRL are cheaply valued Addi-tionally the RUB should profit from attractive risk-adjusted carry and the BRL from more hawkish central bank expecta-tions In Asia we remain positive on the CNY and KRW and neutral on the other Asian FX We lower our 3M USDCNY target to 635 but keep our 12M target at 625 Our USDKRW targets remain unchanged at 1060 and 1010 in 3M and 12M respectively We retain a mild downward bias on the other USDAsia pairs expecting broad USD weak-ness (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 17
Forecasts
At a glance More information on the forecasts and estimates is available Credit Selected indices on request Past performance is not an indicator of future
Yield Spread Duration 3M TR 12M TR fore-performance Performance can be affected by commissions () (bp) (years) forecast cast fees or other charges as well as exchange rate fluctuations BC Global Aggregate 091 33 731 -010 010
BC Global Treasuries 058 9 862 -030 -050
BC Global IG Corp 141 94 735 033 130 Central bank rate10-year government bonds BC Global HY Corp 429 378 416 062 247
CB rate 10Y JPM EMBI Global Di- 480 344 764 032 126 yield versified HC
in Spot 3M 12M Spot 3M 12M
CHF -075 -075 -075 -026 -030 -030 BC = Barclays Capital IG= Investment Grade JPM = JP Morgan (EMBI+) Index data as of 1522021 Forecast as on 1522021
EUR -050 -050 -050 -035 -030 -030 These forecasts are no reliable indicators of future performance Source Bloomberg
USD 013 000-025 000-025 130 140 150 Credit Suisse GBP 010 010 010 062 050 060
AUD 010 010 010 139 130 140
JPY -010 -010 -010 010 010 010 Foreign exchange
Spot 3M 12M Spot rates are closing prices as of 1622021 Forecast date 1122021 These
EURUSD 121 124 125 forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC USDCHF 089 087 088
EURCHF 108 108 110
USDJPY 10594 10200 10000
Equities EURGBP 087 087 086
GBPUSD 139 143 145 Index Spot PE Div y 3M 12M () AUDUSD 078 078 079
MSCI AC World 1679 202 22 1690 1790 USDCAD 126 123 120
US SampP 500 3933 234 21 3950 4150 EURSEK 1004 1010 1020
Eurostoxx 50 3726 181 26 3700 3850 EURNOK 1016 1020 1020
UK FTSE 100 6749 143 43 6700 7000 EURPLN 449 457 459
Japan Topix 1965 185 21 1940 1970 USDCNY 646 635 625
Australia SampPASX 6917 207 38 6900 7150 USDSGD 132 131 128
200 USDKRW 109898 106000 101000
Switzerland SMI 10908 186 28 10950 11400 USDINR 7264 7270 7200
MSCI Emerging Mar- 190621 166 22 194000 207000 USDBRL 538 525 530 kets USDMXN 1994 2050 2150
Prices as of 1622021 Forecast as on 1122021 Gross return (incl dividends) Spot rates are as of 1722021 These forecasts are no reliable indicators of future performance Source Bloomberg These forecasts are no reliable indicators of future performance Source Bloomberg Datastream Credit SuisseIDC Credit SuisseIDC
Commodities Real GDP growth and inflation Spot 3M 12M GDP Inflation
Gold (USDoz) 1793 1900 2000 growth
Silver (USDoz) 273 27 30 in 2020 2021 2022 2020 2021 2022
Platinum (USDoz) 12624 1300 1250 CH -32 35 20 -07 03 02
Palladium (USDoz) 2390 2400 2500 EMU -72 50 42 03 06 10
Copper (USDton) 8416 8300 7900 USA -35 57 35 12 20 21
WTI Crude Oil (USDbbl) 600 60 60 UK -100 53 75 09 14 18
Bloomberg Commodity index 1815 181 186 Australia -20 35 32 08 15 15
Japan -49 17 19 -02 01 03
Spot rates are as of 1722021 forecast as on 1122021 China 23 71 52 25 11 17 These forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC Last forecast update 10022021
These forecasts are no reliable indicators of future performance Source Bloomberg Credit Suisse
(17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 18
Glossary
Risk warnings
Emerging markets Emerging markets are located in countries that possess one or more of the following characteristics a certain degree of political instability relatively unpredictable financial markets and economic growth patterns a financial market that is still at the development stage or a weak economy Emerging market investments usually result in higher risks as a result of political economic credit exchange rate market liquidity legal settlement market shareholder and creditor risks
Hedge funds Regardless of structure hedge funds are not limited to any particular investment discipline or trading strategy and seek to profit in all kinds of markets by using leverage derivative instruments and speculative investment strategies that may increase the risk of investment loss
Commodity investments Commodity transactions carry a high degree of risk and may not be suitable for many private investors The extent of loss due to market movements can be substantial or even result in a total loss
Real estate Investors in real estate are exposed to liquidity foreign currency and other risks including cyclical risk rental and local market risk as well as environmental risk and changes to the legal situation
Currency risks Investments in foreign currencies involve the additional risk that the foreign currency might lose value against the investorrsquos reference currency
Equity risk Equities are subject to market forces and hence fluctuations in value which are not entirely predictable
Market risk Financial markets rise and fall based on economic conditions inflationary pressures world news and business-specific reports While trends may be detected over time it can be difficult to predict the direction of the market and individual stocks This variability puts stock investments at risk of losing value
High Yield bond risk High Yield Bonds are typically rated below investment grade or are unrated and as such are often subject to a higher risk of issuer default
Perpetual Bond risk Perpetual Bonds have no maturity date and therefore the Interest pay-out depends on the viability of the issuer in the very long term
Subordinated Bond risk In case of liquidation of the issuer investors can only get back the principal after other senior creditors are paid
Risk of Bonds with variable deferral of interest terms Investors would face uncertainty over the amount and time of the interest payments to be received
Callable bond risk Investors face reinvestment risk when the issuer exercises its right to redeem the bond before it matures
Risk of Bonds with extendable maturity date Investors would not have a definite schedule of principal repayment
Convertible or exchangeable bond risk Investors are subject to both equity and bond investment risk
Cocos risk The bond may be written-off fully or partially or converted to common stock on the occurrence of a trigger event
Explanation of indices frequently used in reports
Index Comment
Australia SampPASX 200 SampPASX 200 is an Australian market-capitalization-weighted and float-adjusted stock index calculated by Standard and Poors
BC High Yield Corp USD The US Corporate High Yield Index measures USD-denominated non-investment grade fixed-rate and taxable corporate bonds The index is calculated by Barclays
BC High Yield Pan EUR The Euro Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate EUR The US Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate USD The IG Corporate Index tracks the fixed-rate investment-grade dollar-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
Canada SampPTSX comp The SampPTSX composite index is the Canadian equivalent of the SampP 500 Index in the USA The index contains the largest stocks traded on the Toronto Stock Exchange
Consumer Confidence Indices Consumer Confidence Indices (CCIs) are based on surveys of consumers spending intentions and economic situations as well as their concerns and expectations for the immediate future
CS Hedge Fund Index The Credit Suisse Hedge Fund Index is compiled by Credit Suisse Hedge Index LLC It is an asset-weighted hedge fund index and includes only funds as opposed to separate accounts The index reflects performance net of all hedge fund component performance fees and expenses
CS LSI ex govt CHF The Liquid Swiss Index ex govt CHF is a market-capitalized bond index representing the most liquid and tradable portion of the Swiss bond market excluding Swiss government bonds The index is calculated by Credit Suisse
DAX The German Stock Index stock represents 30 of the largest and most liquid German companies that trade on the Frankfurt Exchange
DXY A measure of the value of the US dollar relative to the majority of its most important trading partners The US Dollar Index is similar to other trade-weighted indices which also use the exchange rates from the same major currencies
Eurostoxx 50 Eurostoxx 50 is a market-capitalization-weighted stock index of 50 leading blue-chip companies in the Eurozone
FTSE EPRANAREIT Global Real Estate Index Series The FTSE EPRANAREIT Global Real Estate Index Series is designed to represent general trends in eligible real estate equities worldwide
Hedge Fund Barometer The Hedge Fund Barometer is a proprietary Credit Suisse scoring tool that measures market conditions for hedge fund strategies It comprises four components liquidity volatility systemic risks and business cycle
Japan Topix TOPIX also known as the Tokyo Stock Price Index tracks all large Japanese companies listed in the stock exchanges first section The index calculation excludes temporary issues and preferred stocks
JPM EM hard curr USD The Emerging Market Bond Index Plus tracks the total return of hard-currency sovereign bonds across the most liquid emerging markets The index encompasses US-denominated Brady bonds (dollar-denominated bonds issued by Latin American countries) loans and Eurobonds
JPM EM local curr hedg USD The JPMorgan Government Bond Index tracks local currency bonds issued by emerging market governments across the most accessible markets for international investors
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 19
MSCI AC AsiaPacific The MSCI All Country Asia Pacific Index captures large and mid cap representation across 5 developed market countries and 8 emerging markets countries in the Asia Pacific region With 1000 constituents the index covers approximately 85 of the free float-adjusted market capitalization in each country
MSCI AC World The MSCI All Country World Index captures large and mid cap representation across 23 developed markets and 23 emerging market countries With roughly 2480 constituents the index covers around 85 of the global investable equity opportunity set
MSCI Emerging Markets MSCI Emerging Markets is a free-float-weighted Index designed to measure equity market performance in global emerging markets The index is developed and calculated by Morgan Stanley Capital International
MSCI EMU The MSCI EMU Index (European Economic and Monetary Union) captures large and mid cap representation across the 10 Developed Markets countries in the EMU With 237 constituents the index covers approximately 85 of the free float-adjusted market capitalization of the EMU
MSCI Europe The MSCI Europe Index captures large and mid cap representation across 15 developed markets countries in Europe With 442 constituents the index covers approximately 85 of the free float-adjusted market capitalization across the European developed markets equity universe
MSCI UK The MSCI United Kingdom Index is designed to measure the performance of the large and mid cap segments of the UK market With 111 constituents the index covers approximately 85 of the free float-adjusted market capitalization in the UK
MSCI World MSCI World is an index of global equity markets developed and calculated by Morgan Stanley Capital International Calculations are based on closing prices with dividends reinvested
OECD Composite Leading Indicators OECD Composite Leading Indicators (CLIs) are designed to provide early signals of turning points in business cycles with components that measure early stages of production respond to changes in economic activity and are sensitive to expectations of future activity
Purchasing Managers Indices Purchasing Managers Indices (PMIs) are economic indicators derived from monthly surveys of private-sector companies The two principal producers of PMIs are Markit Group which conducts PMIs for over 30 countries worldwide and the Institute for Supply Management (ISM) which conducts PMIs for the United States The indices include additional sub-indices for manufac-turing surveys such as new orders employment exports stocks of raw materials and finished goods prices of inputs and finished goods and services
Russell 1000 Growth Index The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe based on 1000 large-cap companies with higher price-to-book ratios and higher forecast growth values
Russell 1000 Index The Russell 1000 Index is a stock market index that represents the highest-ranking 1000 stocks in the Russell 3000 Index (encompassing the 3000 largest US-traded stocks with the underlying companies all incorporated in the USA) and representing about 90 of the total market capitalization of that index The Russell 1000 Index has a weighted average market capitalization of USD 81 billion and the median market capitalization is approximately USD 46 billion
Russell 1000 Value Index The Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe based on 1000 large-cap companies with lower price-to-book ratios and lower expected growth values
Switzerland SMI The Swiss Market Index is made up of 20 of the largest companies listed of the Swiss Performance Index universe It represents 85 of the free-float capitalization of the Swiss equity market As a price index the SMI is not adjusted for dividends
UK FTSE 100 FTSE 100 is a market-capitalization-weighted stock index that represents 100 of the most highly capitalized companies traded on the London Stock exchange The equities have an investibility weighting in the index calculation
US SampP 500 Standard and Poors 500 is a capitalization-weighted stock index representing all major industries in the USA which measures the performance of the domestic economy through changes in the aggregate market value
Abbreviations frequently used in reports
Abb Description Abb Description
3612 MMA 3612 month moving average IMF International Monetary Fund
AI Alternative investments LatAm Latin America
APAC Asia Pacific Libor London interbank offered rate
bbl barrel m bd Million barrels per day
BI Bank Indonesia M1 A measure of the money supply that includes all physical money such as coins and currency as well as demand deposits checking accounts and negotiable order of withdrawal accounts
BoC Bank of Canada M2 A measure of money supply that includes cash and checking deposits (M1) as well as savings deposits money market mutual funds and other time deposits
BoE Bank of England M3 A measure of money supply that includes M2 as well as large time deposits institutional money market funds short-term re-purchase agreements and other larger liquid assets
BoJ Bank of Japan MampA Mergers and acquisitions
bp Basis points MAS Monetary Authority of Singapore
BRIC Brazil Russia China India MLP Master Limited Partnership
CAGR Compound annual growth rate MoM Month-on-month
CBOE Chicago Board Options Exchange MPC Monetary Policy Committee
CFO Cash from operations OAS Option-adjusted spread
CFROI Cash flow return on investment OECD Organisation for Economic Co-operation and Development
DCF Discounted cash flow OIS Overnight indexed swap
DM Developed Market OPEC Organization of Petroleum Exporting Countries
DMs Developed Markets PB Price-to-book value
EBITDA Earnings before interest taxes depreciation and amortization PE Price-earnings ratio
ECB European Central Bank PBoC Peoples Bank of China
EEMEA Eastern Europe Middle East and Africa PEG PE ratio divided by growth in EPS
EM Emerging Market PMI Purchasing Managers Index
EMEA Europe Middle East and Africa PPP Purchasing power parity
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 20
EMs Emerging Markets QE Quantitative easing
EMU European Monetary Union QoQ Quarter-on-quarter
EPS Earnings per share rhs right-hand side (for charts)
ETF Exchange traded funds RBA Reserve Bank of Australia
EV Enterprise value RBI Reserve Bank of India
FCF Free cash flow RBNZ Reserve Bank of New Zealand
Fed US Federal Reserve REIT Real estate investment trust
FFO Funds from operations ROE Return on equity
FOMC Federal Open Market Committee ROIC Return on invested capital
FX Foreign exchange RRR Reserve requirement ratio
G10 Group of Ten SAA Strategic asset allocation
G3 Group of Three SDR Special drawing rights
GDP Gross domestic product SNB Swiss National Bank
GPIF Government Pension Investment Fund TAA Tactical asset allocation
HC Hard currency TWI Trade-Weighted Index
HY High yield VIX Volatility Index
IBD Interest-bearing debt WTI West Texas Intermediate
IC Credit Suisse Investment Committee YoY Year-on-year
IG Investment grade YTD Year-to-date
ILB Inflation-linked bond Personal Consumption An indicator of the average increase in prices for all domestic Expenditure (PCE defla- personal consumption tor)
Currency codes frequently used in reports
Code Currency Code Currency
ARS Argentine peso KRW South Korean won
AUD Australian dollar MXN Mexican peso
BRL Brazilian real MYR Malaysian ringgit
CAD Canadian dollar NOK Norwegian krone
CHF Swiss franc NZD New Zealand dollar
CLP Chilean peso PEN Peruvian nuevo sol
CNY Chinese yuan PHP Philippine peso
COP Colombian peso PLN Polish złoty
CZK Czech koruna RUB Russian ruble
EUR Euro SEK Swedish kronakronor
GBP Pound sterling SGD Singapore dollar
HKD Hong Kong dollar THB Thai baht
HUF Hungarian forint TRY Turkish lira
IDR Indonesian rupiah TWD New Taiwan dollar
ILS Israeli new shekel USD United States dollar
INR Indian rupee ZAR South African rand
JPY Japanese yen
Important information on derivatives
Pricing Option premiums and prices mentioned are indicative only Option premiums and prices can be subject to very rapid changes The prices and premiums mentioned are as of the time indicated in the text and might have changed substantially in the meantime
Risks Derivatives are complex instruments and are intended for sale only to investors who are capable of understanding and assuming all the risks involved Investors must be aware that adding option positions to an existing portfolio may change the characteristics and behavior of that portfolio substantially A portfoliorsquos sensitivity to certain market moves can be heavily impacted by the leverage effect of options
Buying calls Investors who buy call options risk the loss of the entire premium paid if the underlying security trades below the strike price at expiration
Buying puts Investors who buy put options risk loss of the entire premium paid if the underlying security finishes above the strike price at expiration
Selling calls Investors who sell calls commit themselves to sell the underlying for the strike price even if the market price of the underlying is substantially higher Investors who sell covered calls (own the underlying security and sell a call) risk limiting their upside to the strike price plus the upfront premium received and may have their security called away if the security price exceeds the strike price of the short call Additionally the investor has full downside participation that is only partially offset by the premium received upfront If investors are forced to sell the underlying they might be subject to taxing Investors shorting naked calls (ie selling calls but without holding the underlying security) risk unlimited losses of security price less strike price
Selling puts Put sellers commit to buying the underlying security at the strike price in the event the security falls below the strike price The maximum loss is the full strike price less the premium received for selling the put
Buying call spreads Investors who buy call spreads (buy a call and sell a call with a higher strike) risk the loss of the entire premium paid if the underlying trades below the lower strike price at expiration The maximum gain from buying call spreads is the difference between the strike prices less the upfront premium paid
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 21
Selling naked call spreads Selling naked call spreads (sell a call and buy a farther out-of-the-money call with no underlying security position) Investors risk a maximum loss of the difference between the long call strike and the short call strike less the upfront premium taken in if the underlying security finishes above the long call strike at expiration The maximum gain is the upfront premium taken in if the security finishes below the short call strike at expiration
Buying put spreads Investors who buy put spreads (buy a put and sell a put with a lower strike price) also have a maximum loss of the upfront premium paid The maximum gain from buying put spreads is the difference between the strike prices less the upfront premium paid
Buying strangles Buying strangles (buy put and buy call) The maximum loss is the entire premium paid for both options if the underlying trades between the put strike and the call strike at expiration
Selling strangles or straddles Investors who are long a security and short a strangle or straddle risk capping their upside in the security to the strike price of the call that is sold plus the upfront premium received Additionally if the security trades below the strike price of the short put investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short put and will also experience losses in the security position if they owns shares The maximum potential loss is the full value of the strike price (less the value of the premium received) plus losses on the long security position Investors who are short naked strangles or straddles have unlimited potential loss since if the security trades above the call strike price investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short call In addition they are obligated to buy the security at the put strike price (less upfront premium received) if the security fin-ishes below the put strike price at expiration
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 22
Important information on mutual funds Fees and charges etc Different types of fees and commissions (subscription fee amount which must be retained in trust assets repurchase fee etc) are charged when investment trustsfunds are purchased and sold In addition apart from these fees and commissions trust and management fees and other fees (audit fee trust administrative charges carried interest etc) are charged and borne by you through your trust asset Fees and commissions borne by you will be a sum of these amounts Such fees and commissions vary depending on the investment trustfund and depending on the investment status and therefore we cannot provide specific amounts or calculation methods
For detailed information on fees and commissions etc of each re-spective investment trustfund please refer to the pre-contract documents (prospectus and other supplementary documents)
Important information on dividends bull Dividends are different to interest on deposits and are paid from the net asset value of investment trustsfunds Therefore when dividends are paid the base value (net asset value per unit) will decrease by an amount equivalent to the amount paid
bull Dividends may be paid exceeding the profit earned during the calculation period (trading profit including profits of dividends etc after expenses) In this case the base value (net asset value per unit) on the settlement date in this period will decrease compared to that on the settlement date in the previous period Also the level of dividends does not always reflect the rate of return for the investment trustfund during the calculation period
bull A part or all of dividends may be virtually equivalent to some repayment of the principal depending on the purchase price of the investment trustfund by an investor The same can be applied to a case that an increase in the base value (net asset value per unit) is smaller than a dividend amount due to the investment status after purchase of the investment trustfund
Please refer to the prospectus for details
Explanation of major risks (description pursuant to Ar-ticle 37 (Regulation on Advertising etc) of the Financial Instruments and Exchange Act etc) The risks described below are a summary of some general risks of investment trustsfunds (risks which have an impact on net asset value) and do not cover all risks Please refer to the pre-trade documents (prospectus and other supplementary documents)
Price volatility risk Investment trustsfunds invest mainly in equities bonds and derivative products etc The value of the investment trustfund will go up or down due to increases or decreases in the prices of such investments Further the value of such investments will be impacted by political and economic factors the financial standing of an issuer market demand and supply interest rates and other factors
Foreign currency risk Investment trustsfunds which invest in equities or bonds etc denominated in foreign currencies entail a foreign currency risk and the base value (or net asset value) of investment trustsfunds may change depending on the currency exchange rate Even when you do not experience a loss of invest-ment principal when calculated in the base currency you may suffer a loss at conversion into Japanese yen due to fluctuations in exchange rates Fur-thermore investment trustsfunds which utilize currency trading among multiple currencies may incur costs due to such currency trading depending on the difference in short-term interest rates between the currencies and you may suffer a loss
Credit risk For investment trustsfunds which invest in equities or bonds etc the prices of these investments may increase and decrease due to changes in the business or financial standing of the issuer and other factors and you may suffer a loss
Risk pertaining to liquidity Where there is sudden high volume in a particular investment or when sudden changes in the external environment surrounding markets triggers a sudden downturn in a market or period of market turmoil etc investments may not be flexibly traded In such a case a decline in the price of the investment may impact the base value (or net asset value) of the investment trust result-ing in a loss Further the management company may decide to stop calcu-lation of net asset prices or suspend sell or redemption claims
In addition for certain types of investment trustfund there is a risk that particular investments may be designated to a separate account (or side pocket) due to a lack of liquidity When a separate account is utilized by in-vestment trustsfunds restrictions may apply as to when such investments can be liquidated through a sell or redemption claim and there may be a re-striction in the timing or form of redemption claim permissible In particular for Fund of Fund investments when an investment trustfund makes an in-vestment without time limit in another fund the investment trustfund may be influenced by investment results in the other funds
Risk associated with an outflow of money received from sales orders When there is a large volume of sale orders in a short period of time the investment trustfund may be forced to sell structured securities at a lower rate than the prevailing market price to refund monies to investors and as a result you may suffer a loss Also alternative investment trustsfunds gen-erally have a limitation in selling or cashing out the investment compared to traditional investment trustsfunds Many alternative investment trustsfunds only accept a sell or redemption order on a monthly or quarterly basis and therefore you may not be able to rapidly exit the investment in for example times of economic uncertainty
Redemption risk Investment trustsfunds may become subject to mandatory redemption due to a certain reason For details please refer to the pre-trade documents (prospectus and other supplementary documents) before subscription
Concentration risk Investment trustsfunds which invest in a certain investment product or similar investment product group may significantly decrease in value (net asset value) under severe market circumstances
Country risk When changes in political economic and social conditions in investment destination countries and regions cause a dislocation in financial and security markets security prices may significantly change Also investments in emerging markets involve unique risks including small market size and trade volume political and social uncertainties undeveloped market infrastructure such as a clearing system undeveloped information disclosure system and legal system by supervising authorities large fluctuations in exchange rates restrictions on currency remittance to foreign countries and other factors and therefore may have larger price fluctuations compared to investments in major developed markets
Important information on non-Japanese stocks Please refer to the issuer information when you purchase non-Japanese stocks
Disclaimer This material is published solely for information purposes and is intended for the recipientrsquos sole use Credit Suisse does not represent or warrant its ac-curacy or completeness The material is not directly or indirectly intended for any investment solicitation and does not constitute an invitation or offer to conclude a transaction contract for financial instruments etc Credit Suisse accepts no liability for loss arising from the use of the information in this material It is recommended that you consult with the third party professional advisors as to legal or tax issues etc This material should not be reproduced or quoted without the prior express written consent of Credit Suisse The information and opinions expressed in this material were produced by Private Banking Division at Credit Suisse as of the date of writing and are subject to change without notice Views expressed in respect of particular investment products in this material may be different from or inconsistent with the ob-
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 23
servations and views of other divisions besides Private Banking due to the differences in evaluation criteria This material is solely distributed in Japan by Credit Suisse Securities (Japan) Limited Credit Suisse Securities (Japan) Limited will not distribute or forward it outside Japan
You may incur a loss as a result of fluctuations in stock prices if you invest in stocks In relation to foreign stocks you may incur a loss in such stocks due to foreign exchange rate fluctuations etc The market value of bonds is affected by interest rate fluctuations or changes in the financial standing of any issuer etc as such you may incur a loss if you sell such bonds before they are redeemed In relation to foreign bonds you may incur a loss in such bonds due to foreign exchange rate fluctuations etc The net asset value of mutual funds can fall as well as rise due to price changes of underlying stocks bonds etc and foreign exchange rate fluctuations and this may cause you to incur a loss
Structured securities and derivatives are complex instruments 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 of any structured security or transaction may be affected by changes in financial market conditions reference indices volatility and the credit quality of any issuer or reference issuer
Furthermore there are structured securities on which you may incur a loss since the redemption amounts are linked with fluctuations in reference indices etc There are also derivatives on which potential losses may exceed the amount of the initial investment Commission rates for any transactions will be as per the rates agreed between Credit Suisse and you For transactions conducted on a principal to principal basis between Credit Suisse and you the purchase or sale price will be the total consideration Transactions con-
ducted on a principal to principal basis including over the counter derivatives transactions will be quoted as a purchasebid price or selloffer price and for which a difference or spread may exist Charges in relation to transactions will be agreed prior to dealing as per our requirements under the Financial Instruments and Exchange Law
By purchasing financial instruments etc you may incur a loss or a loss in excess of the principal as a result of fluctuations in market prices or other financial indices etc Please read carefully the Pre-Contract Documentation provided for an explanation of associated risks and commissions etc of individual financial instruments etc prior to purchase Please contact your Relationship Manager if you have any questions
UNITED STATES NEITHER THIS REPORT NOR ANY COPY THEREOF MAY BE SENT TAKEN INTO OR DISTRIBUTED IN THE UNITED STATES OR TO ANY US PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE US SECURITIES ACT OF 1933 AS AMENDED)
Credit Suisse Securities (Japan) Limited Financial Instruments Dealer Di-rector-General of Kanto Local Finance Bureau (Kinsho) No 66 a member of Japan Securities Dealers Association Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association
Copyright copy 2021 Credit Suisse Group AG andor its affiliates All rights reserved
21C013A_IS_J
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 24
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Publisher Credit Suisse Private Banking amp Wealth Management Investment Solutions amp Products
Information about other Investment Solutions amp Products publications Internet httpsinvestmentcredit-suissecom
Intranet (for employees only) httpsisrcsintranet
Subscription (clients) Please contact your customer advisor to subscribe to this publication
Subscription (internal) For information on subscriptions please visit httpisrcsintranetsubscriptions
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 25
Fixed income
EM HC corporate bonds preferred The ongoing reflationary path is going to support long-dated yields warranting a con-tinued cautious stance on government bonds
We reduce our allocation to EM HC sovereign bonds to benchmark weight We no longer see IG credit as attractive and prefer EM HC corporate bonds
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
Global benchmark yields have continued to trend higher in the last few weeks supported by reflationary expectations Despite the marketsrsquo repricing of more US fiscal stimulus the Federal Reserve (Fed) kept control of front-end rates expectations with the US yield curve further steepening as a result Going forward long-dated inflation expectations are still expected to be the main driver of nominal benchmark yields Both should moderately rise in tandem particularly in the USA With other developed regions following the same reflationary theme albeit with a lag we anticipate that global government bonds will remain an unattractive investment We therefore keep exposure below benchmark allocations in portfolios Furthermore we keep a relatively short duration stance in US Eurozone and Swiss bond markets and prefer US inflation-linked bonds over comparable nominal govern-ment bonds
IG credit no longer attractive prefer EM HC corporate bonds We no longer think that global investment grade (IG) credit offers attractive return potential While monetary policy re-mains supportive IG spreads are already at historical lows and no longer offer enough compensation against the further rise in benchmark yields we expect Global high yield (HY) credit market returns should remain attractive thanks to policy support and the economic recovery we project However we
see limited further spread compression potential in US HY and European HY from the current historical lows We believe emerging market hard currency (EM HC) corporate bonds are most attractive within credit with pro-cyclical emerging markets benefiting from the global growth rebound expected this year At the same time and due to their comparatively low benchmark duration EM HC corporate bonds are less sensitive to higher US government yields than global IG EM HC corporates on average provide similar credit fundamentals to developed market credit but offer more attractive spreads amid the current reflationary environment Also we see more opportunities in EM HC HY corporates particularly in Asia where spreads offer a premium of around 200 bp over US HY
EM HC sovereigns reduced to benchmark allocation EM HC sovereign bond valuations are currently tight with spreads not far off the lows reached after the great financial crisis Inflation has largely bottomed out due to base effects food and energy prices and there is limited scope for further monetary stimulus EM HC sovereign bond spreads have a high correlation with US Treasury yields With the latter still on the rise risks to EM HC sovereign bonds are increasing Positioning is at record highs and flows continue to acceler-ate This suggests that a further strong performance is less likely Given these considerations we have decided to reduce EM HC sovereign bonds to benchmark allocation in our portfolios (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 14
Equities
Remain constructive on globalequities We maintain our attractive return outlook for global equities with a preference for emerging markets UK Germany financials materials and health care
After a double-digit earnings decline in 2020 global earnings are set to recover sharply this year
Marc Haumlfliger Global Equity Strategist
We maintain our attractive return outlook for global equities on the back of supportive monetary conditions vaccine roll-outs growing stimulus prospects and our constructive outlook for economic and earnings growth While traditional valuation metrics remain elevated they look less stretched relative to other asset classes such as global treasury bonds The earnings recovery is key to our thesis of attractive returns for global equities as we do not expect further re-ratings (ie higher multiples) to drive equity markets going forward So far the Q4 earnings results underpin our view that companies have learned how to deal with the current circumstances given earnings results are mostly surpassing projections As a result of this strong showing global EPS growth rates (YoY) will likely be positive again for the Q4 2020 earnings season After an overall double-digit earnings decline in 2020 global earnings are set to recover sharply this year ndash particularly in cyclical market segments Risks to our constructive view on equities come from COVID-19 concerns (mutation potential vaccine disappointments) disappointing fiscal stimulus or earlier-than-expected comments about a withdrawal of mon-etary stimulus
In a portfolio context we keep our overweight in emerging market (EM) equities as we remain bearish on the USD ex-pect higher commodity prices and see the re-opening environ-ment as positive for EM equities We expect cyclical segments that lagged the broader equity benchmark in 2020 ndash such as the UK Germany and financials ndash to catch up amid the im-proved economic outlook and rising inflation expectations
Latest view changes In developed market equities we turn neutral from outperform on Hong Kong equities as a result of their strong performance in recent weeks and increasing macro headwinds In EM eq-uities we now expect South African equities to outperform driven by attractive valuation a strong earnings picture and an accommodative central bank We no longer expect Indian equities to underperform and turn neutral following the gov-ernmentrsquos pro-growth budget announcement an improved macroeconomic outlook and earnings estimates being revised higher at a faster pace than peers
Earnings expected to recover in 2021
Last data point 09022020 Historical performance indications and financial market
scenarios are not reliable indicators of current or future performance Source Factset
Estimates Credit Suisse
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 15
Alternative investments
Still positive on commodities Commodity performance has been strong year-to-date A near-term pause is possible but we retain a positive view and prefer diversified exposure with a cyclical bias
Despite recent resilience we expect listed real estate to lag equities In hedge funds we highlight opportunistic long-short discretionary and EM macro managers as well as private credit
Jelena Kucenko Head of Alternative Investments
Stefan Graber Head of Commodity Strategy
Hedge funds Be selective Hedge funds were flat in January as short covering activity at month-end erased initial gains Fundamental long-short and macro funds suffered the most while relative value and event driven were more resilient Our Trading Conditions Barometer is in favorable territory Combined with regional and sector divergences arising from vaccine rollouts compli-ance with environmental social and governance criteria and record levels of capital-market activity this creates opportuni-ties for long-short managers We also highlight private credit strategies with a focus on consumer loans and mid-market companies which should benefit from resilient household fi-nances and a post-pandemic recovery Discretionary and emerging market (EM) macro managers are preferred in case of market setbacks
Commodities Providing cyclicality and inflation hedge Commodities started 2021 on a strong note focusing on positive growth expectations instead of near-term COVID-19 concerns A near-term pause is possible as the latest gains came ahead of an anticipated reacceleration in industrial ac-tivity That said improved bottom-up fundamentals have flipped aggregate curves into backwardation translating into positive roll yields which may attract additional investor inter-est Commodities also provide a hedge should inflation sur-prise to the upside We retain our positive view on the asset class and favor diversified exposure with a cyclical tilt (oil energy) For oil the March OPEC+ meeting is the next event
risk and a potential source of volatility as the group will likely discuss supply hikes We still think that gold offers diversifica-tion and some upside but the bull run could be maturing as yield curves have started to steepen We thus tone down our optimism on the metal
Real estate Expected to underperform equities Listed real estate slightly outperformed global equities in January thanks to strong earnings results in logistics and a rebound in oversold retail companies as short sellers covered their positions But we believe that further upside potential for the sector is limited as the impact of lockdowns is not yet reflected in landlordsrsquo share prices in our view Additionally valuations in structurally resilient sectors such as logistics and data centers already reflect fundamentals This and the prospect of higher long-term yields and an increased risk of US regulatory headwinds reinforce our negative sector view
Private equity Backdrop still positive Robust investment activity at the end of last year pushed pri-vate equity deal values higher but the asset class still offers better priced opportunities than public markets Dry powder ndash committed but uninvested capital ndash is at a record of over USD 2 trn with subdued fundraising activity expected to re-bound as investors increase commitments in 2021 according to data provider Preqin The expected economic rebound is supportive for the asset class but rising long-term interest rates pose risk to financing costs We highlight strategies offering high growth with limited leverage (venture capital growth capital) and secondary funds which can exploit market opportunities tactically generating excess returns over time
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 16
Foreign exchange
Keep favoring cyclical currencies We maintain a short USD bias and prefer commodity and cyclical currencies such as the EUR GBP or SEK
Within our positive emerging market stance we particularly like the CNY KRW BRL and RUB
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
The USD was broadly flat against other major currencies over the last month Investorsrsquo focus on US fiscal stimulus and an expected rise in US inflation allowed for some normalization in previously large USD short positions While the repricing of near-term growth expectations also in light of a more rapid US vaccination campaign created temporary USD resilience we think this improvement is likely partly reflected in the USD already We maintain that as the Federal Reserve (Fed) keeps short-term rates close to zero for longer there is little room for sustained gains in the USD Moreover US fiscal stimulus will not only deteriorate fiscal balances but also deepen the current account deficit This will also benefit the global econ-omy through improved global trade and sentiment which should weigh on the USD Uncertainties relating to new COVID-19 variants and extended USD short positioning re-main a risk in the short term
Constructive on cyclical currencies A slow start to vaccine rollouts and renewed political risks in Italy somewhat dented sentiment toward the EUR in early February Even so the single currency remained stable vs the USD The Eurozone is facing a delayed recovery but this is consensus already and likely temporary in nature With political risks now subsiding the EU recovery fund operational in the next quarter and the global growth recovery benefitting the export-oriented Eurozone we think EURUSD can gain some further ground and target 124 in 3M Elsewhere in Europe we also remain positive on the SEK and the GBP
vs the USD With global reflation set to continue and com-modity prices likely to remain supported through the ongoing rebalancing we still favor commodity currencies in particular the NZD CAD and NOK
BRL RUB CNY and KRW preferred Emerging market (EM) currencies were broadly range-bound on an index level over the last month but with significant re-turn dispersion across currencies The main arguments sup-porting our attractive view on EM FX remain in place We continue to see further scope for a broad appreciation of EM FX versus the USD Even though the EM economic recovery has peaked economic activity still looks solid relative to de-veloped markets External positions remain in good shape and non-resident flows are still supportive In addition with inflation bottoming and food prices increasing scope for dovish EM central bank surprises seems to be exhausted This should be favorable for EM carry versus the USD
The RUB BRL CNY and KRW remain our preferred curren-cies in EM Both the RUB and BRL are cheaply valued Addi-tionally the RUB should profit from attractive risk-adjusted carry and the BRL from more hawkish central bank expecta-tions In Asia we remain positive on the CNY and KRW and neutral on the other Asian FX We lower our 3M USDCNY target to 635 but keep our 12M target at 625 Our USDKRW targets remain unchanged at 1060 and 1010 in 3M and 12M respectively We retain a mild downward bias on the other USDAsia pairs expecting broad USD weak-ness (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 17
Forecasts
At a glance More information on the forecasts and estimates is available Credit Selected indices on request Past performance is not an indicator of future
Yield Spread Duration 3M TR 12M TR fore-performance Performance can be affected by commissions () (bp) (years) forecast cast fees or other charges as well as exchange rate fluctuations BC Global Aggregate 091 33 731 -010 010
BC Global Treasuries 058 9 862 -030 -050
BC Global IG Corp 141 94 735 033 130 Central bank rate10-year government bonds BC Global HY Corp 429 378 416 062 247
CB rate 10Y JPM EMBI Global Di- 480 344 764 032 126 yield versified HC
in Spot 3M 12M Spot 3M 12M
CHF -075 -075 -075 -026 -030 -030 BC = Barclays Capital IG= Investment Grade JPM = JP Morgan (EMBI+) Index data as of 1522021 Forecast as on 1522021
EUR -050 -050 -050 -035 -030 -030 These forecasts are no reliable indicators of future performance Source Bloomberg
USD 013 000-025 000-025 130 140 150 Credit Suisse GBP 010 010 010 062 050 060
AUD 010 010 010 139 130 140
JPY -010 -010 -010 010 010 010 Foreign exchange
Spot 3M 12M Spot rates are closing prices as of 1622021 Forecast date 1122021 These
EURUSD 121 124 125 forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC USDCHF 089 087 088
EURCHF 108 108 110
USDJPY 10594 10200 10000
Equities EURGBP 087 087 086
GBPUSD 139 143 145 Index Spot PE Div y 3M 12M () AUDUSD 078 078 079
MSCI AC World 1679 202 22 1690 1790 USDCAD 126 123 120
US SampP 500 3933 234 21 3950 4150 EURSEK 1004 1010 1020
Eurostoxx 50 3726 181 26 3700 3850 EURNOK 1016 1020 1020
UK FTSE 100 6749 143 43 6700 7000 EURPLN 449 457 459
Japan Topix 1965 185 21 1940 1970 USDCNY 646 635 625
Australia SampPASX 6917 207 38 6900 7150 USDSGD 132 131 128
200 USDKRW 109898 106000 101000
Switzerland SMI 10908 186 28 10950 11400 USDINR 7264 7270 7200
MSCI Emerging Mar- 190621 166 22 194000 207000 USDBRL 538 525 530 kets USDMXN 1994 2050 2150
Prices as of 1622021 Forecast as on 1122021 Gross return (incl dividends) Spot rates are as of 1722021 These forecasts are no reliable indicators of future performance Source Bloomberg These forecasts are no reliable indicators of future performance Source Bloomberg Datastream Credit SuisseIDC Credit SuisseIDC
Commodities Real GDP growth and inflation Spot 3M 12M GDP Inflation
Gold (USDoz) 1793 1900 2000 growth
Silver (USDoz) 273 27 30 in 2020 2021 2022 2020 2021 2022
Platinum (USDoz) 12624 1300 1250 CH -32 35 20 -07 03 02
Palladium (USDoz) 2390 2400 2500 EMU -72 50 42 03 06 10
Copper (USDton) 8416 8300 7900 USA -35 57 35 12 20 21
WTI Crude Oil (USDbbl) 600 60 60 UK -100 53 75 09 14 18
Bloomberg Commodity index 1815 181 186 Australia -20 35 32 08 15 15
Japan -49 17 19 -02 01 03
Spot rates are as of 1722021 forecast as on 1122021 China 23 71 52 25 11 17 These forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC Last forecast update 10022021
These forecasts are no reliable indicators of future performance Source Bloomberg Credit Suisse
(17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 18
Glossary
Risk warnings
Emerging markets Emerging markets are located in countries that possess one or more of the following characteristics a certain degree of political instability relatively unpredictable financial markets and economic growth patterns a financial market that is still at the development stage or a weak economy Emerging market investments usually result in higher risks as a result of political economic credit exchange rate market liquidity legal settlement market shareholder and creditor risks
Hedge funds Regardless of structure hedge funds are not limited to any particular investment discipline or trading strategy and seek to profit in all kinds of markets by using leverage derivative instruments and speculative investment strategies that may increase the risk of investment loss
Commodity investments Commodity transactions carry a high degree of risk and may not be suitable for many private investors The extent of loss due to market movements can be substantial or even result in a total loss
Real estate Investors in real estate are exposed to liquidity foreign currency and other risks including cyclical risk rental and local market risk as well as environmental risk and changes to the legal situation
Currency risks Investments in foreign currencies involve the additional risk that the foreign currency might lose value against the investorrsquos reference currency
Equity risk Equities are subject to market forces and hence fluctuations in value which are not entirely predictable
Market risk Financial markets rise and fall based on economic conditions inflationary pressures world news and business-specific reports While trends may be detected over time it can be difficult to predict the direction of the market and individual stocks This variability puts stock investments at risk of losing value
High Yield bond risk High Yield Bonds are typically rated below investment grade or are unrated and as such are often subject to a higher risk of issuer default
Perpetual Bond risk Perpetual Bonds have no maturity date and therefore the Interest pay-out depends on the viability of the issuer in the very long term
Subordinated Bond risk In case of liquidation of the issuer investors can only get back the principal after other senior creditors are paid
Risk of Bonds with variable deferral of interest terms Investors would face uncertainty over the amount and time of the interest payments to be received
Callable bond risk Investors face reinvestment risk when the issuer exercises its right to redeem the bond before it matures
Risk of Bonds with extendable maturity date Investors would not have a definite schedule of principal repayment
Convertible or exchangeable bond risk Investors are subject to both equity and bond investment risk
Cocos risk The bond may be written-off fully or partially or converted to common stock on the occurrence of a trigger event
Explanation of indices frequently used in reports
Index Comment
Australia SampPASX 200 SampPASX 200 is an Australian market-capitalization-weighted and float-adjusted stock index calculated by Standard and Poors
BC High Yield Corp USD The US Corporate High Yield Index measures USD-denominated non-investment grade fixed-rate and taxable corporate bonds The index is calculated by Barclays
BC High Yield Pan EUR The Euro Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate EUR The US Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate USD The IG Corporate Index tracks the fixed-rate investment-grade dollar-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
Canada SampPTSX comp The SampPTSX composite index is the Canadian equivalent of the SampP 500 Index in the USA The index contains the largest stocks traded on the Toronto Stock Exchange
Consumer Confidence Indices Consumer Confidence Indices (CCIs) are based on surveys of consumers spending intentions and economic situations as well as their concerns and expectations for the immediate future
CS Hedge Fund Index The Credit Suisse Hedge Fund Index is compiled by Credit Suisse Hedge Index LLC It is an asset-weighted hedge fund index and includes only funds as opposed to separate accounts The index reflects performance net of all hedge fund component performance fees and expenses
CS LSI ex govt CHF The Liquid Swiss Index ex govt CHF is a market-capitalized bond index representing the most liquid and tradable portion of the Swiss bond market excluding Swiss government bonds The index is calculated by Credit Suisse
DAX The German Stock Index stock represents 30 of the largest and most liquid German companies that trade on the Frankfurt Exchange
DXY A measure of the value of the US dollar relative to the majority of its most important trading partners The US Dollar Index is similar to other trade-weighted indices which also use the exchange rates from the same major currencies
Eurostoxx 50 Eurostoxx 50 is a market-capitalization-weighted stock index of 50 leading blue-chip companies in the Eurozone
FTSE EPRANAREIT Global Real Estate Index Series The FTSE EPRANAREIT Global Real Estate Index Series is designed to represent general trends in eligible real estate equities worldwide
Hedge Fund Barometer The Hedge Fund Barometer is a proprietary Credit Suisse scoring tool that measures market conditions for hedge fund strategies It comprises four components liquidity volatility systemic risks and business cycle
Japan Topix TOPIX also known as the Tokyo Stock Price Index tracks all large Japanese companies listed in the stock exchanges first section The index calculation excludes temporary issues and preferred stocks
JPM EM hard curr USD The Emerging Market Bond Index Plus tracks the total return of hard-currency sovereign bonds across the most liquid emerging markets The index encompasses US-denominated Brady bonds (dollar-denominated bonds issued by Latin American countries) loans and Eurobonds
JPM EM local curr hedg USD The JPMorgan Government Bond Index tracks local currency bonds issued by emerging market governments across the most accessible markets for international investors
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 19
MSCI AC AsiaPacific The MSCI All Country Asia Pacific Index captures large and mid cap representation across 5 developed market countries and 8 emerging markets countries in the Asia Pacific region With 1000 constituents the index covers approximately 85 of the free float-adjusted market capitalization in each country
MSCI AC World The MSCI All Country World Index captures large and mid cap representation across 23 developed markets and 23 emerging market countries With roughly 2480 constituents the index covers around 85 of the global investable equity opportunity set
MSCI Emerging Markets MSCI Emerging Markets is a free-float-weighted Index designed to measure equity market performance in global emerging markets The index is developed and calculated by Morgan Stanley Capital International
MSCI EMU The MSCI EMU Index (European Economic and Monetary Union) captures large and mid cap representation across the 10 Developed Markets countries in the EMU With 237 constituents the index covers approximately 85 of the free float-adjusted market capitalization of the EMU
MSCI Europe The MSCI Europe Index captures large and mid cap representation across 15 developed markets countries in Europe With 442 constituents the index covers approximately 85 of the free float-adjusted market capitalization across the European developed markets equity universe
MSCI UK The MSCI United Kingdom Index is designed to measure the performance of the large and mid cap segments of the UK market With 111 constituents the index covers approximately 85 of the free float-adjusted market capitalization in the UK
MSCI World MSCI World is an index of global equity markets developed and calculated by Morgan Stanley Capital International Calculations are based on closing prices with dividends reinvested
OECD Composite Leading Indicators OECD Composite Leading Indicators (CLIs) are designed to provide early signals of turning points in business cycles with components that measure early stages of production respond to changes in economic activity and are sensitive to expectations of future activity
Purchasing Managers Indices Purchasing Managers Indices (PMIs) are economic indicators derived from monthly surveys of private-sector companies The two principal producers of PMIs are Markit Group which conducts PMIs for over 30 countries worldwide and the Institute for Supply Management (ISM) which conducts PMIs for the United States The indices include additional sub-indices for manufac-turing surveys such as new orders employment exports stocks of raw materials and finished goods prices of inputs and finished goods and services
Russell 1000 Growth Index The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe based on 1000 large-cap companies with higher price-to-book ratios and higher forecast growth values
Russell 1000 Index The Russell 1000 Index is a stock market index that represents the highest-ranking 1000 stocks in the Russell 3000 Index (encompassing the 3000 largest US-traded stocks with the underlying companies all incorporated in the USA) and representing about 90 of the total market capitalization of that index The Russell 1000 Index has a weighted average market capitalization of USD 81 billion and the median market capitalization is approximately USD 46 billion
Russell 1000 Value Index The Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe based on 1000 large-cap companies with lower price-to-book ratios and lower expected growth values
Switzerland SMI The Swiss Market Index is made up of 20 of the largest companies listed of the Swiss Performance Index universe It represents 85 of the free-float capitalization of the Swiss equity market As a price index the SMI is not adjusted for dividends
UK FTSE 100 FTSE 100 is a market-capitalization-weighted stock index that represents 100 of the most highly capitalized companies traded on the London Stock exchange The equities have an investibility weighting in the index calculation
US SampP 500 Standard and Poors 500 is a capitalization-weighted stock index representing all major industries in the USA which measures the performance of the domestic economy through changes in the aggregate market value
Abbreviations frequently used in reports
Abb Description Abb Description
3612 MMA 3612 month moving average IMF International Monetary Fund
AI Alternative investments LatAm Latin America
APAC Asia Pacific Libor London interbank offered rate
bbl barrel m bd Million barrels per day
BI Bank Indonesia M1 A measure of the money supply that includes all physical money such as coins and currency as well as demand deposits checking accounts and negotiable order of withdrawal accounts
BoC Bank of Canada M2 A measure of money supply that includes cash and checking deposits (M1) as well as savings deposits money market mutual funds and other time deposits
BoE Bank of England M3 A measure of money supply that includes M2 as well as large time deposits institutional money market funds short-term re-purchase agreements and other larger liquid assets
BoJ Bank of Japan MampA Mergers and acquisitions
bp Basis points MAS Monetary Authority of Singapore
BRIC Brazil Russia China India MLP Master Limited Partnership
CAGR Compound annual growth rate MoM Month-on-month
CBOE Chicago Board Options Exchange MPC Monetary Policy Committee
CFO Cash from operations OAS Option-adjusted spread
CFROI Cash flow return on investment OECD Organisation for Economic Co-operation and Development
DCF Discounted cash flow OIS Overnight indexed swap
DM Developed Market OPEC Organization of Petroleum Exporting Countries
DMs Developed Markets PB Price-to-book value
EBITDA Earnings before interest taxes depreciation and amortization PE Price-earnings ratio
ECB European Central Bank PBoC Peoples Bank of China
EEMEA Eastern Europe Middle East and Africa PEG PE ratio divided by growth in EPS
EM Emerging Market PMI Purchasing Managers Index
EMEA Europe Middle East and Africa PPP Purchasing power parity
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 20
EMs Emerging Markets QE Quantitative easing
EMU European Monetary Union QoQ Quarter-on-quarter
EPS Earnings per share rhs right-hand side (for charts)
ETF Exchange traded funds RBA Reserve Bank of Australia
EV Enterprise value RBI Reserve Bank of India
FCF Free cash flow RBNZ Reserve Bank of New Zealand
Fed US Federal Reserve REIT Real estate investment trust
FFO Funds from operations ROE Return on equity
FOMC Federal Open Market Committee ROIC Return on invested capital
FX Foreign exchange RRR Reserve requirement ratio
G10 Group of Ten SAA Strategic asset allocation
G3 Group of Three SDR Special drawing rights
GDP Gross domestic product SNB Swiss National Bank
GPIF Government Pension Investment Fund TAA Tactical asset allocation
HC Hard currency TWI Trade-Weighted Index
HY High yield VIX Volatility Index
IBD Interest-bearing debt WTI West Texas Intermediate
IC Credit Suisse Investment Committee YoY Year-on-year
IG Investment grade YTD Year-to-date
ILB Inflation-linked bond Personal Consumption An indicator of the average increase in prices for all domestic Expenditure (PCE defla- personal consumption tor)
Currency codes frequently used in reports
Code Currency Code Currency
ARS Argentine peso KRW South Korean won
AUD Australian dollar MXN Mexican peso
BRL Brazilian real MYR Malaysian ringgit
CAD Canadian dollar NOK Norwegian krone
CHF Swiss franc NZD New Zealand dollar
CLP Chilean peso PEN Peruvian nuevo sol
CNY Chinese yuan PHP Philippine peso
COP Colombian peso PLN Polish złoty
CZK Czech koruna RUB Russian ruble
EUR Euro SEK Swedish kronakronor
GBP Pound sterling SGD Singapore dollar
HKD Hong Kong dollar THB Thai baht
HUF Hungarian forint TRY Turkish lira
IDR Indonesian rupiah TWD New Taiwan dollar
ILS Israeli new shekel USD United States dollar
INR Indian rupee ZAR South African rand
JPY Japanese yen
Important information on derivatives
Pricing Option premiums and prices mentioned are indicative only Option premiums and prices can be subject to very rapid changes The prices and premiums mentioned are as of the time indicated in the text and might have changed substantially in the meantime
Risks Derivatives are complex instruments and are intended for sale only to investors who are capable of understanding and assuming all the risks involved Investors must be aware that adding option positions to an existing portfolio may change the characteristics and behavior of that portfolio substantially A portfoliorsquos sensitivity to certain market moves can be heavily impacted by the leverage effect of options
Buying calls Investors who buy call options risk the loss of the entire premium paid if the underlying security trades below the strike price at expiration
Buying puts Investors who buy put options risk loss of the entire premium paid if the underlying security finishes above the strike price at expiration
Selling calls Investors who sell calls commit themselves to sell the underlying for the strike price even if the market price of the underlying is substantially higher Investors who sell covered calls (own the underlying security and sell a call) risk limiting their upside to the strike price plus the upfront premium received and may have their security called away if the security price exceeds the strike price of the short call Additionally the investor has full downside participation that is only partially offset by the premium received upfront If investors are forced to sell the underlying they might be subject to taxing Investors shorting naked calls (ie selling calls but without holding the underlying security) risk unlimited losses of security price less strike price
Selling puts Put sellers commit to buying the underlying security at the strike price in the event the security falls below the strike price The maximum loss is the full strike price less the premium received for selling the put
Buying call spreads Investors who buy call spreads (buy a call and sell a call with a higher strike) risk the loss of the entire premium paid if the underlying trades below the lower strike price at expiration The maximum gain from buying call spreads is the difference between the strike prices less the upfront premium paid
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 21
Selling naked call spreads Selling naked call spreads (sell a call and buy a farther out-of-the-money call with no underlying security position) Investors risk a maximum loss of the difference between the long call strike and the short call strike less the upfront premium taken in if the underlying security finishes above the long call strike at expiration The maximum gain is the upfront premium taken in if the security finishes below the short call strike at expiration
Buying put spreads Investors who buy put spreads (buy a put and sell a put with a lower strike price) also have a maximum loss of the upfront premium paid The maximum gain from buying put spreads is the difference between the strike prices less the upfront premium paid
Buying strangles Buying strangles (buy put and buy call) The maximum loss is the entire premium paid for both options if the underlying trades between the put strike and the call strike at expiration
Selling strangles or straddles Investors who are long a security and short a strangle or straddle risk capping their upside in the security to the strike price of the call that is sold plus the upfront premium received Additionally if the security trades below the strike price of the short put investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short put and will also experience losses in the security position if they owns shares The maximum potential loss is the full value of the strike price (less the value of the premium received) plus losses on the long security position Investors who are short naked strangles or straddles have unlimited potential loss since if the security trades above the call strike price investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short call In addition they are obligated to buy the security at the put strike price (less upfront premium received) if the security fin-ishes below the put strike price at expiration
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 22
Important information on mutual funds Fees and charges etc Different types of fees and commissions (subscription fee amount which must be retained in trust assets repurchase fee etc) are charged when investment trustsfunds are purchased and sold In addition apart from these fees and commissions trust and management fees and other fees (audit fee trust administrative charges carried interest etc) are charged and borne by you through your trust asset Fees and commissions borne by you will be a sum of these amounts Such fees and commissions vary depending on the investment trustfund and depending on the investment status and therefore we cannot provide specific amounts or calculation methods
For detailed information on fees and commissions etc of each re-spective investment trustfund please refer to the pre-contract documents (prospectus and other supplementary documents)
Important information on dividends bull Dividends are different to interest on deposits and are paid from the net asset value of investment trustsfunds Therefore when dividends are paid the base value (net asset value per unit) will decrease by an amount equivalent to the amount paid
bull Dividends may be paid exceeding the profit earned during the calculation period (trading profit including profits of dividends etc after expenses) In this case the base value (net asset value per unit) on the settlement date in this period will decrease compared to that on the settlement date in the previous period Also the level of dividends does not always reflect the rate of return for the investment trustfund during the calculation period
bull A part or all of dividends may be virtually equivalent to some repayment of the principal depending on the purchase price of the investment trustfund by an investor The same can be applied to a case that an increase in the base value (net asset value per unit) is smaller than a dividend amount due to the investment status after purchase of the investment trustfund
Please refer to the prospectus for details
Explanation of major risks (description pursuant to Ar-ticle 37 (Regulation on Advertising etc) of the Financial Instruments and Exchange Act etc) The risks described below are a summary of some general risks of investment trustsfunds (risks which have an impact on net asset value) and do not cover all risks Please refer to the pre-trade documents (prospectus and other supplementary documents)
Price volatility risk Investment trustsfunds invest mainly in equities bonds and derivative products etc The value of the investment trustfund will go up or down due to increases or decreases in the prices of such investments Further the value of such investments will be impacted by political and economic factors the financial standing of an issuer market demand and supply interest rates and other factors
Foreign currency risk Investment trustsfunds which invest in equities or bonds etc denominated in foreign currencies entail a foreign currency risk and the base value (or net asset value) of investment trustsfunds may change depending on the currency exchange rate Even when you do not experience a loss of invest-ment principal when calculated in the base currency you may suffer a loss at conversion into Japanese yen due to fluctuations in exchange rates Fur-thermore investment trustsfunds which utilize currency trading among multiple currencies may incur costs due to such currency trading depending on the difference in short-term interest rates between the currencies and you may suffer a loss
Credit risk For investment trustsfunds which invest in equities or bonds etc the prices of these investments may increase and decrease due to changes in the business or financial standing of the issuer and other factors and you may suffer a loss
Risk pertaining to liquidity Where there is sudden high volume in a particular investment or when sudden changes in the external environment surrounding markets triggers a sudden downturn in a market or period of market turmoil etc investments may not be flexibly traded In such a case a decline in the price of the investment may impact the base value (or net asset value) of the investment trust result-ing in a loss Further the management company may decide to stop calcu-lation of net asset prices or suspend sell or redemption claims
In addition for certain types of investment trustfund there is a risk that particular investments may be designated to a separate account (or side pocket) due to a lack of liquidity When a separate account is utilized by in-vestment trustsfunds restrictions may apply as to when such investments can be liquidated through a sell or redemption claim and there may be a re-striction in the timing or form of redemption claim permissible In particular for Fund of Fund investments when an investment trustfund makes an in-vestment without time limit in another fund the investment trustfund may be influenced by investment results in the other funds
Risk associated with an outflow of money received from sales orders When there is a large volume of sale orders in a short period of time the investment trustfund may be forced to sell structured securities at a lower rate than the prevailing market price to refund monies to investors and as a result you may suffer a loss Also alternative investment trustsfunds gen-erally have a limitation in selling or cashing out the investment compared to traditional investment trustsfunds Many alternative investment trustsfunds only accept a sell or redemption order on a monthly or quarterly basis and therefore you may not be able to rapidly exit the investment in for example times of economic uncertainty
Redemption risk Investment trustsfunds may become subject to mandatory redemption due to a certain reason For details please refer to the pre-trade documents (prospectus and other supplementary documents) before subscription
Concentration risk Investment trustsfunds which invest in a certain investment product or similar investment product group may significantly decrease in value (net asset value) under severe market circumstances
Country risk When changes in political economic and social conditions in investment destination countries and regions cause a dislocation in financial and security markets security prices may significantly change Also investments in emerging markets involve unique risks including small market size and trade volume political and social uncertainties undeveloped market infrastructure such as a clearing system undeveloped information disclosure system and legal system by supervising authorities large fluctuations in exchange rates restrictions on currency remittance to foreign countries and other factors and therefore may have larger price fluctuations compared to investments in major developed markets
Important information on non-Japanese stocks Please refer to the issuer information when you purchase non-Japanese stocks
Disclaimer This material is published solely for information purposes and is intended for the recipientrsquos sole use Credit Suisse does not represent or warrant its ac-curacy or completeness The material is not directly or indirectly intended for any investment solicitation and does not constitute an invitation or offer to conclude a transaction contract for financial instruments etc Credit Suisse accepts no liability for loss arising from the use of the information in this material It is recommended that you consult with the third party professional advisors as to legal or tax issues etc This material should not be reproduced or quoted without the prior express written consent of Credit Suisse The information and opinions expressed in this material were produced by Private Banking Division at Credit Suisse as of the date of writing and are subject to change without notice Views expressed in respect of particular investment products in this material may be different from or inconsistent with the ob-
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 23
servations and views of other divisions besides Private Banking due to the differences in evaluation criteria This material is solely distributed in Japan by Credit Suisse Securities (Japan) Limited Credit Suisse Securities (Japan) Limited will not distribute or forward it outside Japan
You may incur a loss as a result of fluctuations in stock prices if you invest in stocks In relation to foreign stocks you may incur a loss in such stocks due to foreign exchange rate fluctuations etc The market value of bonds is affected by interest rate fluctuations or changes in the financial standing of any issuer etc as such you may incur a loss if you sell such bonds before they are redeemed In relation to foreign bonds you may incur a loss in such bonds due to foreign exchange rate fluctuations etc The net asset value of mutual funds can fall as well as rise due to price changes of underlying stocks bonds etc and foreign exchange rate fluctuations and this may cause you to incur a loss
Structured securities and derivatives are complex instruments 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 of any structured security or transaction may be affected by changes in financial market conditions reference indices volatility and the credit quality of any issuer or reference issuer
Furthermore there are structured securities on which you may incur a loss since the redemption amounts are linked with fluctuations in reference indices etc There are also derivatives on which potential losses may exceed the amount of the initial investment Commission rates for any transactions will be as per the rates agreed between Credit Suisse and you For transactions conducted on a principal to principal basis between Credit Suisse and you the purchase or sale price will be the total consideration Transactions con-
ducted on a principal to principal basis including over the counter derivatives transactions will be quoted as a purchasebid price or selloffer price and for which a difference or spread may exist Charges in relation to transactions will be agreed prior to dealing as per our requirements under the Financial Instruments and Exchange Law
By purchasing financial instruments etc you may incur a loss or a loss in excess of the principal as a result of fluctuations in market prices or other financial indices etc Please read carefully the Pre-Contract Documentation provided for an explanation of associated risks and commissions etc of individual financial instruments etc prior to purchase Please contact your Relationship Manager if you have any questions
UNITED STATES NEITHER THIS REPORT NOR ANY COPY THEREOF MAY BE SENT TAKEN INTO OR DISTRIBUTED IN THE UNITED STATES OR TO ANY US PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE US SECURITIES ACT OF 1933 AS AMENDED)
Credit Suisse Securities (Japan) Limited Financial Instruments Dealer Di-rector-General of Kanto Local Finance Bureau (Kinsho) No 66 a member of Japan Securities Dealers Association Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association
Copyright copy 2021 Credit Suisse Group AG andor its affiliates All rights reserved
21C013A_IS_J
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 24
Imprint
Publisher Credit Suisse Private Banking amp Wealth Management Investment Solutions amp Products
Information about other Investment Solutions amp Products publications Internet httpsinvestmentcredit-suissecom
Intranet (for employees only) httpsisrcsintranet
Subscription (clients) Please contact your customer advisor to subscribe to this publication
Subscription (internal) For information on subscriptions please visit httpisrcsintranetsubscriptions
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 25
Equities
Remain constructive on globalequities We maintain our attractive return outlook for global equities with a preference for emerging markets UK Germany financials materials and health care
After a double-digit earnings decline in 2020 global earnings are set to recover sharply this year
Marc Haumlfliger Global Equity Strategist
We maintain our attractive return outlook for global equities on the back of supportive monetary conditions vaccine roll-outs growing stimulus prospects and our constructive outlook for economic and earnings growth While traditional valuation metrics remain elevated they look less stretched relative to other asset classes such as global treasury bonds The earnings recovery is key to our thesis of attractive returns for global equities as we do not expect further re-ratings (ie higher multiples) to drive equity markets going forward So far the Q4 earnings results underpin our view that companies have learned how to deal with the current circumstances given earnings results are mostly surpassing projections As a result of this strong showing global EPS growth rates (YoY) will likely be positive again for the Q4 2020 earnings season After an overall double-digit earnings decline in 2020 global earnings are set to recover sharply this year ndash particularly in cyclical market segments Risks to our constructive view on equities come from COVID-19 concerns (mutation potential vaccine disappointments) disappointing fiscal stimulus or earlier-than-expected comments about a withdrawal of mon-etary stimulus
In a portfolio context we keep our overweight in emerging market (EM) equities as we remain bearish on the USD ex-pect higher commodity prices and see the re-opening environ-ment as positive for EM equities We expect cyclical segments that lagged the broader equity benchmark in 2020 ndash such as the UK Germany and financials ndash to catch up amid the im-proved economic outlook and rising inflation expectations
Latest view changes In developed market equities we turn neutral from outperform on Hong Kong equities as a result of their strong performance in recent weeks and increasing macro headwinds In EM eq-uities we now expect South African equities to outperform driven by attractive valuation a strong earnings picture and an accommodative central bank We no longer expect Indian equities to underperform and turn neutral following the gov-ernmentrsquos pro-growth budget announcement an improved macroeconomic outlook and earnings estimates being revised higher at a faster pace than peers
Earnings expected to recover in 2021
Last data point 09022020 Historical performance indications and financial market
scenarios are not reliable indicators of current or future performance Source Factset
Estimates Credit Suisse
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 15
Alternative investments
Still positive on commodities Commodity performance has been strong year-to-date A near-term pause is possible but we retain a positive view and prefer diversified exposure with a cyclical bias
Despite recent resilience we expect listed real estate to lag equities In hedge funds we highlight opportunistic long-short discretionary and EM macro managers as well as private credit
Jelena Kucenko Head of Alternative Investments
Stefan Graber Head of Commodity Strategy
Hedge funds Be selective Hedge funds were flat in January as short covering activity at month-end erased initial gains Fundamental long-short and macro funds suffered the most while relative value and event driven were more resilient Our Trading Conditions Barometer is in favorable territory Combined with regional and sector divergences arising from vaccine rollouts compli-ance with environmental social and governance criteria and record levels of capital-market activity this creates opportuni-ties for long-short managers We also highlight private credit strategies with a focus on consumer loans and mid-market companies which should benefit from resilient household fi-nances and a post-pandemic recovery Discretionary and emerging market (EM) macro managers are preferred in case of market setbacks
Commodities Providing cyclicality and inflation hedge Commodities started 2021 on a strong note focusing on positive growth expectations instead of near-term COVID-19 concerns A near-term pause is possible as the latest gains came ahead of an anticipated reacceleration in industrial ac-tivity That said improved bottom-up fundamentals have flipped aggregate curves into backwardation translating into positive roll yields which may attract additional investor inter-est Commodities also provide a hedge should inflation sur-prise to the upside We retain our positive view on the asset class and favor diversified exposure with a cyclical tilt (oil energy) For oil the March OPEC+ meeting is the next event
risk and a potential source of volatility as the group will likely discuss supply hikes We still think that gold offers diversifica-tion and some upside but the bull run could be maturing as yield curves have started to steepen We thus tone down our optimism on the metal
Real estate Expected to underperform equities Listed real estate slightly outperformed global equities in January thanks to strong earnings results in logistics and a rebound in oversold retail companies as short sellers covered their positions But we believe that further upside potential for the sector is limited as the impact of lockdowns is not yet reflected in landlordsrsquo share prices in our view Additionally valuations in structurally resilient sectors such as logistics and data centers already reflect fundamentals This and the prospect of higher long-term yields and an increased risk of US regulatory headwinds reinforce our negative sector view
Private equity Backdrop still positive Robust investment activity at the end of last year pushed pri-vate equity deal values higher but the asset class still offers better priced opportunities than public markets Dry powder ndash committed but uninvested capital ndash is at a record of over USD 2 trn with subdued fundraising activity expected to re-bound as investors increase commitments in 2021 according to data provider Preqin The expected economic rebound is supportive for the asset class but rising long-term interest rates pose risk to financing costs We highlight strategies offering high growth with limited leverage (venture capital growth capital) and secondary funds which can exploit market opportunities tactically generating excess returns over time
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 16
Foreign exchange
Keep favoring cyclical currencies We maintain a short USD bias and prefer commodity and cyclical currencies such as the EUR GBP or SEK
Within our positive emerging market stance we particularly like the CNY KRW BRL and RUB
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
The USD was broadly flat against other major currencies over the last month Investorsrsquo focus on US fiscal stimulus and an expected rise in US inflation allowed for some normalization in previously large USD short positions While the repricing of near-term growth expectations also in light of a more rapid US vaccination campaign created temporary USD resilience we think this improvement is likely partly reflected in the USD already We maintain that as the Federal Reserve (Fed) keeps short-term rates close to zero for longer there is little room for sustained gains in the USD Moreover US fiscal stimulus will not only deteriorate fiscal balances but also deepen the current account deficit This will also benefit the global econ-omy through improved global trade and sentiment which should weigh on the USD Uncertainties relating to new COVID-19 variants and extended USD short positioning re-main a risk in the short term
Constructive on cyclical currencies A slow start to vaccine rollouts and renewed political risks in Italy somewhat dented sentiment toward the EUR in early February Even so the single currency remained stable vs the USD The Eurozone is facing a delayed recovery but this is consensus already and likely temporary in nature With political risks now subsiding the EU recovery fund operational in the next quarter and the global growth recovery benefitting the export-oriented Eurozone we think EURUSD can gain some further ground and target 124 in 3M Elsewhere in Europe we also remain positive on the SEK and the GBP
vs the USD With global reflation set to continue and com-modity prices likely to remain supported through the ongoing rebalancing we still favor commodity currencies in particular the NZD CAD and NOK
BRL RUB CNY and KRW preferred Emerging market (EM) currencies were broadly range-bound on an index level over the last month but with significant re-turn dispersion across currencies The main arguments sup-porting our attractive view on EM FX remain in place We continue to see further scope for a broad appreciation of EM FX versus the USD Even though the EM economic recovery has peaked economic activity still looks solid relative to de-veloped markets External positions remain in good shape and non-resident flows are still supportive In addition with inflation bottoming and food prices increasing scope for dovish EM central bank surprises seems to be exhausted This should be favorable for EM carry versus the USD
The RUB BRL CNY and KRW remain our preferred curren-cies in EM Both the RUB and BRL are cheaply valued Addi-tionally the RUB should profit from attractive risk-adjusted carry and the BRL from more hawkish central bank expecta-tions In Asia we remain positive on the CNY and KRW and neutral on the other Asian FX We lower our 3M USDCNY target to 635 but keep our 12M target at 625 Our USDKRW targets remain unchanged at 1060 and 1010 in 3M and 12M respectively We retain a mild downward bias on the other USDAsia pairs expecting broad USD weak-ness (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 17
Forecasts
At a glance More information on the forecasts and estimates is available Credit Selected indices on request Past performance is not an indicator of future
Yield Spread Duration 3M TR 12M TR fore-performance Performance can be affected by commissions () (bp) (years) forecast cast fees or other charges as well as exchange rate fluctuations BC Global Aggregate 091 33 731 -010 010
BC Global Treasuries 058 9 862 -030 -050
BC Global IG Corp 141 94 735 033 130 Central bank rate10-year government bonds BC Global HY Corp 429 378 416 062 247
CB rate 10Y JPM EMBI Global Di- 480 344 764 032 126 yield versified HC
in Spot 3M 12M Spot 3M 12M
CHF -075 -075 -075 -026 -030 -030 BC = Barclays Capital IG= Investment Grade JPM = JP Morgan (EMBI+) Index data as of 1522021 Forecast as on 1522021
EUR -050 -050 -050 -035 -030 -030 These forecasts are no reliable indicators of future performance Source Bloomberg
USD 013 000-025 000-025 130 140 150 Credit Suisse GBP 010 010 010 062 050 060
AUD 010 010 010 139 130 140
JPY -010 -010 -010 010 010 010 Foreign exchange
Spot 3M 12M Spot rates are closing prices as of 1622021 Forecast date 1122021 These
EURUSD 121 124 125 forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC USDCHF 089 087 088
EURCHF 108 108 110
USDJPY 10594 10200 10000
Equities EURGBP 087 087 086
GBPUSD 139 143 145 Index Spot PE Div y 3M 12M () AUDUSD 078 078 079
MSCI AC World 1679 202 22 1690 1790 USDCAD 126 123 120
US SampP 500 3933 234 21 3950 4150 EURSEK 1004 1010 1020
Eurostoxx 50 3726 181 26 3700 3850 EURNOK 1016 1020 1020
UK FTSE 100 6749 143 43 6700 7000 EURPLN 449 457 459
Japan Topix 1965 185 21 1940 1970 USDCNY 646 635 625
Australia SampPASX 6917 207 38 6900 7150 USDSGD 132 131 128
200 USDKRW 109898 106000 101000
Switzerland SMI 10908 186 28 10950 11400 USDINR 7264 7270 7200
MSCI Emerging Mar- 190621 166 22 194000 207000 USDBRL 538 525 530 kets USDMXN 1994 2050 2150
Prices as of 1622021 Forecast as on 1122021 Gross return (incl dividends) Spot rates are as of 1722021 These forecasts are no reliable indicators of future performance Source Bloomberg These forecasts are no reliable indicators of future performance Source Bloomberg Datastream Credit SuisseIDC Credit SuisseIDC
Commodities Real GDP growth and inflation Spot 3M 12M GDP Inflation
Gold (USDoz) 1793 1900 2000 growth
Silver (USDoz) 273 27 30 in 2020 2021 2022 2020 2021 2022
Platinum (USDoz) 12624 1300 1250 CH -32 35 20 -07 03 02
Palladium (USDoz) 2390 2400 2500 EMU -72 50 42 03 06 10
Copper (USDton) 8416 8300 7900 USA -35 57 35 12 20 21
WTI Crude Oil (USDbbl) 600 60 60 UK -100 53 75 09 14 18
Bloomberg Commodity index 1815 181 186 Australia -20 35 32 08 15 15
Japan -49 17 19 -02 01 03
Spot rates are as of 1722021 forecast as on 1122021 China 23 71 52 25 11 17 These forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC Last forecast update 10022021
These forecasts are no reliable indicators of future performance Source Bloomberg Credit Suisse
(17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 18
Glossary
Risk warnings
Emerging markets Emerging markets are located in countries that possess one or more of the following characteristics a certain degree of political instability relatively unpredictable financial markets and economic growth patterns a financial market that is still at the development stage or a weak economy Emerging market investments usually result in higher risks as a result of political economic credit exchange rate market liquidity legal settlement market shareholder and creditor risks
Hedge funds Regardless of structure hedge funds are not limited to any particular investment discipline or trading strategy and seek to profit in all kinds of markets by using leverage derivative instruments and speculative investment strategies that may increase the risk of investment loss
Commodity investments Commodity transactions carry a high degree of risk and may not be suitable for many private investors The extent of loss due to market movements can be substantial or even result in a total loss
Real estate Investors in real estate are exposed to liquidity foreign currency and other risks including cyclical risk rental and local market risk as well as environmental risk and changes to the legal situation
Currency risks Investments in foreign currencies involve the additional risk that the foreign currency might lose value against the investorrsquos reference currency
Equity risk Equities are subject to market forces and hence fluctuations in value which are not entirely predictable
Market risk Financial markets rise and fall based on economic conditions inflationary pressures world news and business-specific reports While trends may be detected over time it can be difficult to predict the direction of the market and individual stocks This variability puts stock investments at risk of losing value
High Yield bond risk High Yield Bonds are typically rated below investment grade or are unrated and as such are often subject to a higher risk of issuer default
Perpetual Bond risk Perpetual Bonds have no maturity date and therefore the Interest pay-out depends on the viability of the issuer in the very long term
Subordinated Bond risk In case of liquidation of the issuer investors can only get back the principal after other senior creditors are paid
Risk of Bonds with variable deferral of interest terms Investors would face uncertainty over the amount and time of the interest payments to be received
Callable bond risk Investors face reinvestment risk when the issuer exercises its right to redeem the bond before it matures
Risk of Bonds with extendable maturity date Investors would not have a definite schedule of principal repayment
Convertible or exchangeable bond risk Investors are subject to both equity and bond investment risk
Cocos risk The bond may be written-off fully or partially or converted to common stock on the occurrence of a trigger event
Explanation of indices frequently used in reports
Index Comment
Australia SampPASX 200 SampPASX 200 is an Australian market-capitalization-weighted and float-adjusted stock index calculated by Standard and Poors
BC High Yield Corp USD The US Corporate High Yield Index measures USD-denominated non-investment grade fixed-rate and taxable corporate bonds The index is calculated by Barclays
BC High Yield Pan EUR The Euro Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate EUR The US Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate USD The IG Corporate Index tracks the fixed-rate investment-grade dollar-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
Canada SampPTSX comp The SampPTSX composite index is the Canadian equivalent of the SampP 500 Index in the USA The index contains the largest stocks traded on the Toronto Stock Exchange
Consumer Confidence Indices Consumer Confidence Indices (CCIs) are based on surveys of consumers spending intentions and economic situations as well as their concerns and expectations for the immediate future
CS Hedge Fund Index The Credit Suisse Hedge Fund Index is compiled by Credit Suisse Hedge Index LLC It is an asset-weighted hedge fund index and includes only funds as opposed to separate accounts The index reflects performance net of all hedge fund component performance fees and expenses
CS LSI ex govt CHF The Liquid Swiss Index ex govt CHF is a market-capitalized bond index representing the most liquid and tradable portion of the Swiss bond market excluding Swiss government bonds The index is calculated by Credit Suisse
DAX The German Stock Index stock represents 30 of the largest and most liquid German companies that trade on the Frankfurt Exchange
DXY A measure of the value of the US dollar relative to the majority of its most important trading partners The US Dollar Index is similar to other trade-weighted indices which also use the exchange rates from the same major currencies
Eurostoxx 50 Eurostoxx 50 is a market-capitalization-weighted stock index of 50 leading blue-chip companies in the Eurozone
FTSE EPRANAREIT Global Real Estate Index Series The FTSE EPRANAREIT Global Real Estate Index Series is designed to represent general trends in eligible real estate equities worldwide
Hedge Fund Barometer The Hedge Fund Barometer is a proprietary Credit Suisse scoring tool that measures market conditions for hedge fund strategies It comprises four components liquidity volatility systemic risks and business cycle
Japan Topix TOPIX also known as the Tokyo Stock Price Index tracks all large Japanese companies listed in the stock exchanges first section The index calculation excludes temporary issues and preferred stocks
JPM EM hard curr USD The Emerging Market Bond Index Plus tracks the total return of hard-currency sovereign bonds across the most liquid emerging markets The index encompasses US-denominated Brady bonds (dollar-denominated bonds issued by Latin American countries) loans and Eurobonds
JPM EM local curr hedg USD The JPMorgan Government Bond Index tracks local currency bonds issued by emerging market governments across the most accessible markets for international investors
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 19
MSCI AC AsiaPacific The MSCI All Country Asia Pacific Index captures large and mid cap representation across 5 developed market countries and 8 emerging markets countries in the Asia Pacific region With 1000 constituents the index covers approximately 85 of the free float-adjusted market capitalization in each country
MSCI AC World The MSCI All Country World Index captures large and mid cap representation across 23 developed markets and 23 emerging market countries With roughly 2480 constituents the index covers around 85 of the global investable equity opportunity set
MSCI Emerging Markets MSCI Emerging Markets is a free-float-weighted Index designed to measure equity market performance in global emerging markets The index is developed and calculated by Morgan Stanley Capital International
MSCI EMU The MSCI EMU Index (European Economic and Monetary Union) captures large and mid cap representation across the 10 Developed Markets countries in the EMU With 237 constituents the index covers approximately 85 of the free float-adjusted market capitalization of the EMU
MSCI Europe The MSCI Europe Index captures large and mid cap representation across 15 developed markets countries in Europe With 442 constituents the index covers approximately 85 of the free float-adjusted market capitalization across the European developed markets equity universe
MSCI UK The MSCI United Kingdom Index is designed to measure the performance of the large and mid cap segments of the UK market With 111 constituents the index covers approximately 85 of the free float-adjusted market capitalization in the UK
MSCI World MSCI World is an index of global equity markets developed and calculated by Morgan Stanley Capital International Calculations are based on closing prices with dividends reinvested
OECD Composite Leading Indicators OECD Composite Leading Indicators (CLIs) are designed to provide early signals of turning points in business cycles with components that measure early stages of production respond to changes in economic activity and are sensitive to expectations of future activity
Purchasing Managers Indices Purchasing Managers Indices (PMIs) are economic indicators derived from monthly surveys of private-sector companies The two principal producers of PMIs are Markit Group which conducts PMIs for over 30 countries worldwide and the Institute for Supply Management (ISM) which conducts PMIs for the United States The indices include additional sub-indices for manufac-turing surveys such as new orders employment exports stocks of raw materials and finished goods prices of inputs and finished goods and services
Russell 1000 Growth Index The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe based on 1000 large-cap companies with higher price-to-book ratios and higher forecast growth values
Russell 1000 Index The Russell 1000 Index is a stock market index that represents the highest-ranking 1000 stocks in the Russell 3000 Index (encompassing the 3000 largest US-traded stocks with the underlying companies all incorporated in the USA) and representing about 90 of the total market capitalization of that index The Russell 1000 Index has a weighted average market capitalization of USD 81 billion and the median market capitalization is approximately USD 46 billion
Russell 1000 Value Index The Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe based on 1000 large-cap companies with lower price-to-book ratios and lower expected growth values
Switzerland SMI The Swiss Market Index is made up of 20 of the largest companies listed of the Swiss Performance Index universe It represents 85 of the free-float capitalization of the Swiss equity market As a price index the SMI is not adjusted for dividends
UK FTSE 100 FTSE 100 is a market-capitalization-weighted stock index that represents 100 of the most highly capitalized companies traded on the London Stock exchange The equities have an investibility weighting in the index calculation
US SampP 500 Standard and Poors 500 is a capitalization-weighted stock index representing all major industries in the USA which measures the performance of the domestic economy through changes in the aggregate market value
Abbreviations frequently used in reports
Abb Description Abb Description
3612 MMA 3612 month moving average IMF International Monetary Fund
AI Alternative investments LatAm Latin America
APAC Asia Pacific Libor London interbank offered rate
bbl barrel m bd Million barrels per day
BI Bank Indonesia M1 A measure of the money supply that includes all physical money such as coins and currency as well as demand deposits checking accounts and negotiable order of withdrawal accounts
BoC Bank of Canada M2 A measure of money supply that includes cash and checking deposits (M1) as well as savings deposits money market mutual funds and other time deposits
BoE Bank of England M3 A measure of money supply that includes M2 as well as large time deposits institutional money market funds short-term re-purchase agreements and other larger liquid assets
BoJ Bank of Japan MampA Mergers and acquisitions
bp Basis points MAS Monetary Authority of Singapore
BRIC Brazil Russia China India MLP Master Limited Partnership
CAGR Compound annual growth rate MoM Month-on-month
CBOE Chicago Board Options Exchange MPC Monetary Policy Committee
CFO Cash from operations OAS Option-adjusted spread
CFROI Cash flow return on investment OECD Organisation for Economic Co-operation and Development
DCF Discounted cash flow OIS Overnight indexed swap
DM Developed Market OPEC Organization of Petroleum Exporting Countries
DMs Developed Markets PB Price-to-book value
EBITDA Earnings before interest taxes depreciation and amortization PE Price-earnings ratio
ECB European Central Bank PBoC Peoples Bank of China
EEMEA Eastern Europe Middle East and Africa PEG PE ratio divided by growth in EPS
EM Emerging Market PMI Purchasing Managers Index
EMEA Europe Middle East and Africa PPP Purchasing power parity
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 20
EMs Emerging Markets QE Quantitative easing
EMU European Monetary Union QoQ Quarter-on-quarter
EPS Earnings per share rhs right-hand side (for charts)
ETF Exchange traded funds RBA Reserve Bank of Australia
EV Enterprise value RBI Reserve Bank of India
FCF Free cash flow RBNZ Reserve Bank of New Zealand
Fed US Federal Reserve REIT Real estate investment trust
FFO Funds from operations ROE Return on equity
FOMC Federal Open Market Committee ROIC Return on invested capital
FX Foreign exchange RRR Reserve requirement ratio
G10 Group of Ten SAA Strategic asset allocation
G3 Group of Three SDR Special drawing rights
GDP Gross domestic product SNB Swiss National Bank
GPIF Government Pension Investment Fund TAA Tactical asset allocation
HC Hard currency TWI Trade-Weighted Index
HY High yield VIX Volatility Index
IBD Interest-bearing debt WTI West Texas Intermediate
IC Credit Suisse Investment Committee YoY Year-on-year
IG Investment grade YTD Year-to-date
ILB Inflation-linked bond Personal Consumption An indicator of the average increase in prices for all domestic Expenditure (PCE defla- personal consumption tor)
Currency codes frequently used in reports
Code Currency Code Currency
ARS Argentine peso KRW South Korean won
AUD Australian dollar MXN Mexican peso
BRL Brazilian real MYR Malaysian ringgit
CAD Canadian dollar NOK Norwegian krone
CHF Swiss franc NZD New Zealand dollar
CLP Chilean peso PEN Peruvian nuevo sol
CNY Chinese yuan PHP Philippine peso
COP Colombian peso PLN Polish złoty
CZK Czech koruna RUB Russian ruble
EUR Euro SEK Swedish kronakronor
GBP Pound sterling SGD Singapore dollar
HKD Hong Kong dollar THB Thai baht
HUF Hungarian forint TRY Turkish lira
IDR Indonesian rupiah TWD New Taiwan dollar
ILS Israeli new shekel USD United States dollar
INR Indian rupee ZAR South African rand
JPY Japanese yen
Important information on derivatives
Pricing Option premiums and prices mentioned are indicative only Option premiums and prices can be subject to very rapid changes The prices and premiums mentioned are as of the time indicated in the text and might have changed substantially in the meantime
Risks Derivatives are complex instruments and are intended for sale only to investors who are capable of understanding and assuming all the risks involved Investors must be aware that adding option positions to an existing portfolio may change the characteristics and behavior of that portfolio substantially A portfoliorsquos sensitivity to certain market moves can be heavily impacted by the leverage effect of options
Buying calls Investors who buy call options risk the loss of the entire premium paid if the underlying security trades below the strike price at expiration
Buying puts Investors who buy put options risk loss of the entire premium paid if the underlying security finishes above the strike price at expiration
Selling calls Investors who sell calls commit themselves to sell the underlying for the strike price even if the market price of the underlying is substantially higher Investors who sell covered calls (own the underlying security and sell a call) risk limiting their upside to the strike price plus the upfront premium received and may have their security called away if the security price exceeds the strike price of the short call Additionally the investor has full downside participation that is only partially offset by the premium received upfront If investors are forced to sell the underlying they might be subject to taxing Investors shorting naked calls (ie selling calls but without holding the underlying security) risk unlimited losses of security price less strike price
Selling puts Put sellers commit to buying the underlying security at the strike price in the event the security falls below the strike price The maximum loss is the full strike price less the premium received for selling the put
Buying call spreads Investors who buy call spreads (buy a call and sell a call with a higher strike) risk the loss of the entire premium paid if the underlying trades below the lower strike price at expiration The maximum gain from buying call spreads is the difference between the strike prices less the upfront premium paid
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 21
Selling naked call spreads Selling naked call spreads (sell a call and buy a farther out-of-the-money call with no underlying security position) Investors risk a maximum loss of the difference between the long call strike and the short call strike less the upfront premium taken in if the underlying security finishes above the long call strike at expiration The maximum gain is the upfront premium taken in if the security finishes below the short call strike at expiration
Buying put spreads Investors who buy put spreads (buy a put and sell a put with a lower strike price) also have a maximum loss of the upfront premium paid The maximum gain from buying put spreads is the difference between the strike prices less the upfront premium paid
Buying strangles Buying strangles (buy put and buy call) The maximum loss is the entire premium paid for both options if the underlying trades between the put strike and the call strike at expiration
Selling strangles or straddles Investors who are long a security and short a strangle or straddle risk capping their upside in the security to the strike price of the call that is sold plus the upfront premium received Additionally if the security trades below the strike price of the short put investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short put and will also experience losses in the security position if they owns shares The maximum potential loss is the full value of the strike price (less the value of the premium received) plus losses on the long security position Investors who are short naked strangles or straddles have unlimited potential loss since if the security trades above the call strike price investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short call In addition they are obligated to buy the security at the put strike price (less upfront premium received) if the security fin-ishes below the put strike price at expiration
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 22
Important information on mutual funds Fees and charges etc Different types of fees and commissions (subscription fee amount which must be retained in trust assets repurchase fee etc) are charged when investment trustsfunds are purchased and sold In addition apart from these fees and commissions trust and management fees and other fees (audit fee trust administrative charges carried interest etc) are charged and borne by you through your trust asset Fees and commissions borne by you will be a sum of these amounts Such fees and commissions vary depending on the investment trustfund and depending on the investment status and therefore we cannot provide specific amounts or calculation methods
For detailed information on fees and commissions etc of each re-spective investment trustfund please refer to the pre-contract documents (prospectus and other supplementary documents)
Important information on dividends bull Dividends are different to interest on deposits and are paid from the net asset value of investment trustsfunds Therefore when dividends are paid the base value (net asset value per unit) will decrease by an amount equivalent to the amount paid
bull Dividends may be paid exceeding the profit earned during the calculation period (trading profit including profits of dividends etc after expenses) In this case the base value (net asset value per unit) on the settlement date in this period will decrease compared to that on the settlement date in the previous period Also the level of dividends does not always reflect the rate of return for the investment trustfund during the calculation period
bull A part or all of dividends may be virtually equivalent to some repayment of the principal depending on the purchase price of the investment trustfund by an investor The same can be applied to a case that an increase in the base value (net asset value per unit) is smaller than a dividend amount due to the investment status after purchase of the investment trustfund
Please refer to the prospectus for details
Explanation of major risks (description pursuant to Ar-ticle 37 (Regulation on Advertising etc) of the Financial Instruments and Exchange Act etc) The risks described below are a summary of some general risks of investment trustsfunds (risks which have an impact on net asset value) and do not cover all risks Please refer to the pre-trade documents (prospectus and other supplementary documents)
Price volatility risk Investment trustsfunds invest mainly in equities bonds and derivative products etc The value of the investment trustfund will go up or down due to increases or decreases in the prices of such investments Further the value of such investments will be impacted by political and economic factors the financial standing of an issuer market demand and supply interest rates and other factors
Foreign currency risk Investment trustsfunds which invest in equities or bonds etc denominated in foreign currencies entail a foreign currency risk and the base value (or net asset value) of investment trustsfunds may change depending on the currency exchange rate Even when you do not experience a loss of invest-ment principal when calculated in the base currency you may suffer a loss at conversion into Japanese yen due to fluctuations in exchange rates Fur-thermore investment trustsfunds which utilize currency trading among multiple currencies may incur costs due to such currency trading depending on the difference in short-term interest rates between the currencies and you may suffer a loss
Credit risk For investment trustsfunds which invest in equities or bonds etc the prices of these investments may increase and decrease due to changes in the business or financial standing of the issuer and other factors and you may suffer a loss
Risk pertaining to liquidity Where there is sudden high volume in a particular investment or when sudden changes in the external environment surrounding markets triggers a sudden downturn in a market or period of market turmoil etc investments may not be flexibly traded In such a case a decline in the price of the investment may impact the base value (or net asset value) of the investment trust result-ing in a loss Further the management company may decide to stop calcu-lation of net asset prices or suspend sell or redemption claims
In addition for certain types of investment trustfund there is a risk that particular investments may be designated to a separate account (or side pocket) due to a lack of liquidity When a separate account is utilized by in-vestment trustsfunds restrictions may apply as to when such investments can be liquidated through a sell or redemption claim and there may be a re-striction in the timing or form of redemption claim permissible In particular for Fund of Fund investments when an investment trustfund makes an in-vestment without time limit in another fund the investment trustfund may be influenced by investment results in the other funds
Risk associated with an outflow of money received from sales orders When there is a large volume of sale orders in a short period of time the investment trustfund may be forced to sell structured securities at a lower rate than the prevailing market price to refund monies to investors and as a result you may suffer a loss Also alternative investment trustsfunds gen-erally have a limitation in selling or cashing out the investment compared to traditional investment trustsfunds Many alternative investment trustsfunds only accept a sell or redemption order on a monthly or quarterly basis and therefore you may not be able to rapidly exit the investment in for example times of economic uncertainty
Redemption risk Investment trustsfunds may become subject to mandatory redemption due to a certain reason For details please refer to the pre-trade documents (prospectus and other supplementary documents) before subscription
Concentration risk Investment trustsfunds which invest in a certain investment product or similar investment product group may significantly decrease in value (net asset value) under severe market circumstances
Country risk When changes in political economic and social conditions in investment destination countries and regions cause a dislocation in financial and security markets security prices may significantly change Also investments in emerging markets involve unique risks including small market size and trade volume political and social uncertainties undeveloped market infrastructure such as a clearing system undeveloped information disclosure system and legal system by supervising authorities large fluctuations in exchange rates restrictions on currency remittance to foreign countries and other factors and therefore may have larger price fluctuations compared to investments in major developed markets
Important information on non-Japanese stocks Please refer to the issuer information when you purchase non-Japanese stocks
Disclaimer This material is published solely for information purposes and is intended for the recipientrsquos sole use Credit Suisse does not represent or warrant its ac-curacy or completeness The material is not directly or indirectly intended for any investment solicitation and does not constitute an invitation or offer to conclude a transaction contract for financial instruments etc Credit Suisse accepts no liability for loss arising from the use of the information in this material It is recommended that you consult with the third party professional advisors as to legal or tax issues etc This material should not be reproduced or quoted without the prior express written consent of Credit Suisse The information and opinions expressed in this material were produced by Private Banking Division at Credit Suisse as of the date of writing and are subject to change without notice Views expressed in respect of particular investment products in this material may be different from or inconsistent with the ob-
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 23
servations and views of other divisions besides Private Banking due to the differences in evaluation criteria This material is solely distributed in Japan by Credit Suisse Securities (Japan) Limited Credit Suisse Securities (Japan) Limited will not distribute or forward it outside Japan
You may incur a loss as a result of fluctuations in stock prices if you invest in stocks In relation to foreign stocks you may incur a loss in such stocks due to foreign exchange rate fluctuations etc The market value of bonds is affected by interest rate fluctuations or changes in the financial standing of any issuer etc as such you may incur a loss if you sell such bonds before they are redeemed In relation to foreign bonds you may incur a loss in such bonds due to foreign exchange rate fluctuations etc The net asset value of mutual funds can fall as well as rise due to price changes of underlying stocks bonds etc and foreign exchange rate fluctuations and this may cause you to incur a loss
Structured securities and derivatives are complex instruments 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 of any structured security or transaction may be affected by changes in financial market conditions reference indices volatility and the credit quality of any issuer or reference issuer
Furthermore there are structured securities on which you may incur a loss since the redemption amounts are linked with fluctuations in reference indices etc There are also derivatives on which potential losses may exceed the amount of the initial investment Commission rates for any transactions will be as per the rates agreed between Credit Suisse and you For transactions conducted on a principal to principal basis between Credit Suisse and you the purchase or sale price will be the total consideration Transactions con-
ducted on a principal to principal basis including over the counter derivatives transactions will be quoted as a purchasebid price or selloffer price and for which a difference or spread may exist Charges in relation to transactions will be agreed prior to dealing as per our requirements under the Financial Instruments and Exchange Law
By purchasing financial instruments etc you may incur a loss or a loss in excess of the principal as a result of fluctuations in market prices or other financial indices etc Please read carefully the Pre-Contract Documentation provided for an explanation of associated risks and commissions etc of individual financial instruments etc prior to purchase Please contact your Relationship Manager if you have any questions
UNITED STATES NEITHER THIS REPORT NOR ANY COPY THEREOF MAY BE SENT TAKEN INTO OR DISTRIBUTED IN THE UNITED STATES OR TO ANY US PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE US SECURITIES ACT OF 1933 AS AMENDED)
Credit Suisse Securities (Japan) Limited Financial Instruments Dealer Di-rector-General of Kanto Local Finance Bureau (Kinsho) No 66 a member of Japan Securities Dealers Association Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association
Copyright copy 2021 Credit Suisse Group AG andor its affiliates All rights reserved
21C013A_IS_J
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 24
Imprint
Publisher Credit Suisse Private Banking amp Wealth Management Investment Solutions amp Products
Information about other Investment Solutions amp Products publications Internet httpsinvestmentcredit-suissecom
Intranet (for employees only) httpsisrcsintranet
Subscription (clients) Please contact your customer advisor to subscribe to this publication
Subscription (internal) For information on subscriptions please visit httpisrcsintranetsubscriptions
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 25
Alternative investments
Still positive on commodities Commodity performance has been strong year-to-date A near-term pause is possible but we retain a positive view and prefer diversified exposure with a cyclical bias
Despite recent resilience we expect listed real estate to lag equities In hedge funds we highlight opportunistic long-short discretionary and EM macro managers as well as private credit
Jelena Kucenko Head of Alternative Investments
Stefan Graber Head of Commodity Strategy
Hedge funds Be selective Hedge funds were flat in January as short covering activity at month-end erased initial gains Fundamental long-short and macro funds suffered the most while relative value and event driven were more resilient Our Trading Conditions Barometer is in favorable territory Combined with regional and sector divergences arising from vaccine rollouts compli-ance with environmental social and governance criteria and record levels of capital-market activity this creates opportuni-ties for long-short managers We also highlight private credit strategies with a focus on consumer loans and mid-market companies which should benefit from resilient household fi-nances and a post-pandemic recovery Discretionary and emerging market (EM) macro managers are preferred in case of market setbacks
Commodities Providing cyclicality and inflation hedge Commodities started 2021 on a strong note focusing on positive growth expectations instead of near-term COVID-19 concerns A near-term pause is possible as the latest gains came ahead of an anticipated reacceleration in industrial ac-tivity That said improved bottom-up fundamentals have flipped aggregate curves into backwardation translating into positive roll yields which may attract additional investor inter-est Commodities also provide a hedge should inflation sur-prise to the upside We retain our positive view on the asset class and favor diversified exposure with a cyclical tilt (oil energy) For oil the March OPEC+ meeting is the next event
risk and a potential source of volatility as the group will likely discuss supply hikes We still think that gold offers diversifica-tion and some upside but the bull run could be maturing as yield curves have started to steepen We thus tone down our optimism on the metal
Real estate Expected to underperform equities Listed real estate slightly outperformed global equities in January thanks to strong earnings results in logistics and a rebound in oversold retail companies as short sellers covered their positions But we believe that further upside potential for the sector is limited as the impact of lockdowns is not yet reflected in landlordsrsquo share prices in our view Additionally valuations in structurally resilient sectors such as logistics and data centers already reflect fundamentals This and the prospect of higher long-term yields and an increased risk of US regulatory headwinds reinforce our negative sector view
Private equity Backdrop still positive Robust investment activity at the end of last year pushed pri-vate equity deal values higher but the asset class still offers better priced opportunities than public markets Dry powder ndash committed but uninvested capital ndash is at a record of over USD 2 trn with subdued fundraising activity expected to re-bound as investors increase commitments in 2021 according to data provider Preqin The expected economic rebound is supportive for the asset class but rising long-term interest rates pose risk to financing costs We highlight strategies offering high growth with limited leverage (venture capital growth capital) and secondary funds which can exploit market opportunities tactically generating excess returns over time
(12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 16
Foreign exchange
Keep favoring cyclical currencies We maintain a short USD bias and prefer commodity and cyclical currencies such as the EUR GBP or SEK
Within our positive emerging market stance we particularly like the CNY KRW BRL and RUB
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
The USD was broadly flat against other major currencies over the last month Investorsrsquo focus on US fiscal stimulus and an expected rise in US inflation allowed for some normalization in previously large USD short positions While the repricing of near-term growth expectations also in light of a more rapid US vaccination campaign created temporary USD resilience we think this improvement is likely partly reflected in the USD already We maintain that as the Federal Reserve (Fed) keeps short-term rates close to zero for longer there is little room for sustained gains in the USD Moreover US fiscal stimulus will not only deteriorate fiscal balances but also deepen the current account deficit This will also benefit the global econ-omy through improved global trade and sentiment which should weigh on the USD Uncertainties relating to new COVID-19 variants and extended USD short positioning re-main a risk in the short term
Constructive on cyclical currencies A slow start to vaccine rollouts and renewed political risks in Italy somewhat dented sentiment toward the EUR in early February Even so the single currency remained stable vs the USD The Eurozone is facing a delayed recovery but this is consensus already and likely temporary in nature With political risks now subsiding the EU recovery fund operational in the next quarter and the global growth recovery benefitting the export-oriented Eurozone we think EURUSD can gain some further ground and target 124 in 3M Elsewhere in Europe we also remain positive on the SEK and the GBP
vs the USD With global reflation set to continue and com-modity prices likely to remain supported through the ongoing rebalancing we still favor commodity currencies in particular the NZD CAD and NOK
BRL RUB CNY and KRW preferred Emerging market (EM) currencies were broadly range-bound on an index level over the last month but with significant re-turn dispersion across currencies The main arguments sup-porting our attractive view on EM FX remain in place We continue to see further scope for a broad appreciation of EM FX versus the USD Even though the EM economic recovery has peaked economic activity still looks solid relative to de-veloped markets External positions remain in good shape and non-resident flows are still supportive In addition with inflation bottoming and food prices increasing scope for dovish EM central bank surprises seems to be exhausted This should be favorable for EM carry versus the USD
The RUB BRL CNY and KRW remain our preferred curren-cies in EM Both the RUB and BRL are cheaply valued Addi-tionally the RUB should profit from attractive risk-adjusted carry and the BRL from more hawkish central bank expecta-tions In Asia we remain positive on the CNY and KRW and neutral on the other Asian FX We lower our 3M USDCNY target to 635 but keep our 12M target at 625 Our USDKRW targets remain unchanged at 1060 and 1010 in 3M and 12M respectively We retain a mild downward bias on the other USDAsia pairs expecting broad USD weak-ness (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 17
Forecasts
At a glance More information on the forecasts and estimates is available Credit Selected indices on request Past performance is not an indicator of future
Yield Spread Duration 3M TR 12M TR fore-performance Performance can be affected by commissions () (bp) (years) forecast cast fees or other charges as well as exchange rate fluctuations BC Global Aggregate 091 33 731 -010 010
BC Global Treasuries 058 9 862 -030 -050
BC Global IG Corp 141 94 735 033 130 Central bank rate10-year government bonds BC Global HY Corp 429 378 416 062 247
CB rate 10Y JPM EMBI Global Di- 480 344 764 032 126 yield versified HC
in Spot 3M 12M Spot 3M 12M
CHF -075 -075 -075 -026 -030 -030 BC = Barclays Capital IG= Investment Grade JPM = JP Morgan (EMBI+) Index data as of 1522021 Forecast as on 1522021
EUR -050 -050 -050 -035 -030 -030 These forecasts are no reliable indicators of future performance Source Bloomberg
USD 013 000-025 000-025 130 140 150 Credit Suisse GBP 010 010 010 062 050 060
AUD 010 010 010 139 130 140
JPY -010 -010 -010 010 010 010 Foreign exchange
Spot 3M 12M Spot rates are closing prices as of 1622021 Forecast date 1122021 These
EURUSD 121 124 125 forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC USDCHF 089 087 088
EURCHF 108 108 110
USDJPY 10594 10200 10000
Equities EURGBP 087 087 086
GBPUSD 139 143 145 Index Spot PE Div y 3M 12M () AUDUSD 078 078 079
MSCI AC World 1679 202 22 1690 1790 USDCAD 126 123 120
US SampP 500 3933 234 21 3950 4150 EURSEK 1004 1010 1020
Eurostoxx 50 3726 181 26 3700 3850 EURNOK 1016 1020 1020
UK FTSE 100 6749 143 43 6700 7000 EURPLN 449 457 459
Japan Topix 1965 185 21 1940 1970 USDCNY 646 635 625
Australia SampPASX 6917 207 38 6900 7150 USDSGD 132 131 128
200 USDKRW 109898 106000 101000
Switzerland SMI 10908 186 28 10950 11400 USDINR 7264 7270 7200
MSCI Emerging Mar- 190621 166 22 194000 207000 USDBRL 538 525 530 kets USDMXN 1994 2050 2150
Prices as of 1622021 Forecast as on 1122021 Gross return (incl dividends) Spot rates are as of 1722021 These forecasts are no reliable indicators of future performance Source Bloomberg These forecasts are no reliable indicators of future performance Source Bloomberg Datastream Credit SuisseIDC Credit SuisseIDC
Commodities Real GDP growth and inflation Spot 3M 12M GDP Inflation
Gold (USDoz) 1793 1900 2000 growth
Silver (USDoz) 273 27 30 in 2020 2021 2022 2020 2021 2022
Platinum (USDoz) 12624 1300 1250 CH -32 35 20 -07 03 02
Palladium (USDoz) 2390 2400 2500 EMU -72 50 42 03 06 10
Copper (USDton) 8416 8300 7900 USA -35 57 35 12 20 21
WTI Crude Oil (USDbbl) 600 60 60 UK -100 53 75 09 14 18
Bloomberg Commodity index 1815 181 186 Australia -20 35 32 08 15 15
Japan -49 17 19 -02 01 03
Spot rates are as of 1722021 forecast as on 1122021 China 23 71 52 25 11 17 These forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC Last forecast update 10022021
These forecasts are no reliable indicators of future performance Source Bloomberg Credit Suisse
(17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 18
Glossary
Risk warnings
Emerging markets Emerging markets are located in countries that possess one or more of the following characteristics a certain degree of political instability relatively unpredictable financial markets and economic growth patterns a financial market that is still at the development stage or a weak economy Emerging market investments usually result in higher risks as a result of political economic credit exchange rate market liquidity legal settlement market shareholder and creditor risks
Hedge funds Regardless of structure hedge funds are not limited to any particular investment discipline or trading strategy and seek to profit in all kinds of markets by using leverage derivative instruments and speculative investment strategies that may increase the risk of investment loss
Commodity investments Commodity transactions carry a high degree of risk and may not be suitable for many private investors The extent of loss due to market movements can be substantial or even result in a total loss
Real estate Investors in real estate are exposed to liquidity foreign currency and other risks including cyclical risk rental and local market risk as well as environmental risk and changes to the legal situation
Currency risks Investments in foreign currencies involve the additional risk that the foreign currency might lose value against the investorrsquos reference currency
Equity risk Equities are subject to market forces and hence fluctuations in value which are not entirely predictable
Market risk Financial markets rise and fall based on economic conditions inflationary pressures world news and business-specific reports While trends may be detected over time it can be difficult to predict the direction of the market and individual stocks This variability puts stock investments at risk of losing value
High Yield bond risk High Yield Bonds are typically rated below investment grade or are unrated and as such are often subject to a higher risk of issuer default
Perpetual Bond risk Perpetual Bonds have no maturity date and therefore the Interest pay-out depends on the viability of the issuer in the very long term
Subordinated Bond risk In case of liquidation of the issuer investors can only get back the principal after other senior creditors are paid
Risk of Bonds with variable deferral of interest terms Investors would face uncertainty over the amount and time of the interest payments to be received
Callable bond risk Investors face reinvestment risk when the issuer exercises its right to redeem the bond before it matures
Risk of Bonds with extendable maturity date Investors would not have a definite schedule of principal repayment
Convertible or exchangeable bond risk Investors are subject to both equity and bond investment risk
Cocos risk The bond may be written-off fully or partially or converted to common stock on the occurrence of a trigger event
Explanation of indices frequently used in reports
Index Comment
Australia SampPASX 200 SampPASX 200 is an Australian market-capitalization-weighted and float-adjusted stock index calculated by Standard and Poors
BC High Yield Corp USD The US Corporate High Yield Index measures USD-denominated non-investment grade fixed-rate and taxable corporate bonds The index is calculated by Barclays
BC High Yield Pan EUR The Euro Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate EUR The US Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate USD The IG Corporate Index tracks the fixed-rate investment-grade dollar-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
Canada SampPTSX comp The SampPTSX composite index is the Canadian equivalent of the SampP 500 Index in the USA The index contains the largest stocks traded on the Toronto Stock Exchange
Consumer Confidence Indices Consumer Confidence Indices (CCIs) are based on surveys of consumers spending intentions and economic situations as well as their concerns and expectations for the immediate future
CS Hedge Fund Index The Credit Suisse Hedge Fund Index is compiled by Credit Suisse Hedge Index LLC It is an asset-weighted hedge fund index and includes only funds as opposed to separate accounts The index reflects performance net of all hedge fund component performance fees and expenses
CS LSI ex govt CHF The Liquid Swiss Index ex govt CHF is a market-capitalized bond index representing the most liquid and tradable portion of the Swiss bond market excluding Swiss government bonds The index is calculated by Credit Suisse
DAX The German Stock Index stock represents 30 of the largest and most liquid German companies that trade on the Frankfurt Exchange
DXY A measure of the value of the US dollar relative to the majority of its most important trading partners The US Dollar Index is similar to other trade-weighted indices which also use the exchange rates from the same major currencies
Eurostoxx 50 Eurostoxx 50 is a market-capitalization-weighted stock index of 50 leading blue-chip companies in the Eurozone
FTSE EPRANAREIT Global Real Estate Index Series The FTSE EPRANAREIT Global Real Estate Index Series is designed to represent general trends in eligible real estate equities worldwide
Hedge Fund Barometer The Hedge Fund Barometer is a proprietary Credit Suisse scoring tool that measures market conditions for hedge fund strategies It comprises four components liquidity volatility systemic risks and business cycle
Japan Topix TOPIX also known as the Tokyo Stock Price Index tracks all large Japanese companies listed in the stock exchanges first section The index calculation excludes temporary issues and preferred stocks
JPM EM hard curr USD The Emerging Market Bond Index Plus tracks the total return of hard-currency sovereign bonds across the most liquid emerging markets The index encompasses US-denominated Brady bonds (dollar-denominated bonds issued by Latin American countries) loans and Eurobonds
JPM EM local curr hedg USD The JPMorgan Government Bond Index tracks local currency bonds issued by emerging market governments across the most accessible markets for international investors
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 19
MSCI AC AsiaPacific The MSCI All Country Asia Pacific Index captures large and mid cap representation across 5 developed market countries and 8 emerging markets countries in the Asia Pacific region With 1000 constituents the index covers approximately 85 of the free float-adjusted market capitalization in each country
MSCI AC World The MSCI All Country World Index captures large and mid cap representation across 23 developed markets and 23 emerging market countries With roughly 2480 constituents the index covers around 85 of the global investable equity opportunity set
MSCI Emerging Markets MSCI Emerging Markets is a free-float-weighted Index designed to measure equity market performance in global emerging markets The index is developed and calculated by Morgan Stanley Capital International
MSCI EMU The MSCI EMU Index (European Economic and Monetary Union) captures large and mid cap representation across the 10 Developed Markets countries in the EMU With 237 constituents the index covers approximately 85 of the free float-adjusted market capitalization of the EMU
MSCI Europe The MSCI Europe Index captures large and mid cap representation across 15 developed markets countries in Europe With 442 constituents the index covers approximately 85 of the free float-adjusted market capitalization across the European developed markets equity universe
MSCI UK The MSCI United Kingdom Index is designed to measure the performance of the large and mid cap segments of the UK market With 111 constituents the index covers approximately 85 of the free float-adjusted market capitalization in the UK
MSCI World MSCI World is an index of global equity markets developed and calculated by Morgan Stanley Capital International Calculations are based on closing prices with dividends reinvested
OECD Composite Leading Indicators OECD Composite Leading Indicators (CLIs) are designed to provide early signals of turning points in business cycles with components that measure early stages of production respond to changes in economic activity and are sensitive to expectations of future activity
Purchasing Managers Indices Purchasing Managers Indices (PMIs) are economic indicators derived from monthly surveys of private-sector companies The two principal producers of PMIs are Markit Group which conducts PMIs for over 30 countries worldwide and the Institute for Supply Management (ISM) which conducts PMIs for the United States The indices include additional sub-indices for manufac-turing surveys such as new orders employment exports stocks of raw materials and finished goods prices of inputs and finished goods and services
Russell 1000 Growth Index The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe based on 1000 large-cap companies with higher price-to-book ratios and higher forecast growth values
Russell 1000 Index The Russell 1000 Index is a stock market index that represents the highest-ranking 1000 stocks in the Russell 3000 Index (encompassing the 3000 largest US-traded stocks with the underlying companies all incorporated in the USA) and representing about 90 of the total market capitalization of that index The Russell 1000 Index has a weighted average market capitalization of USD 81 billion and the median market capitalization is approximately USD 46 billion
Russell 1000 Value Index The Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe based on 1000 large-cap companies with lower price-to-book ratios and lower expected growth values
Switzerland SMI The Swiss Market Index is made up of 20 of the largest companies listed of the Swiss Performance Index universe It represents 85 of the free-float capitalization of the Swiss equity market As a price index the SMI is not adjusted for dividends
UK FTSE 100 FTSE 100 is a market-capitalization-weighted stock index that represents 100 of the most highly capitalized companies traded on the London Stock exchange The equities have an investibility weighting in the index calculation
US SampP 500 Standard and Poors 500 is a capitalization-weighted stock index representing all major industries in the USA which measures the performance of the domestic economy through changes in the aggregate market value
Abbreviations frequently used in reports
Abb Description Abb Description
3612 MMA 3612 month moving average IMF International Monetary Fund
AI Alternative investments LatAm Latin America
APAC Asia Pacific Libor London interbank offered rate
bbl barrel m bd Million barrels per day
BI Bank Indonesia M1 A measure of the money supply that includes all physical money such as coins and currency as well as demand deposits checking accounts and negotiable order of withdrawal accounts
BoC Bank of Canada M2 A measure of money supply that includes cash and checking deposits (M1) as well as savings deposits money market mutual funds and other time deposits
BoE Bank of England M3 A measure of money supply that includes M2 as well as large time deposits institutional money market funds short-term re-purchase agreements and other larger liquid assets
BoJ Bank of Japan MampA Mergers and acquisitions
bp Basis points MAS Monetary Authority of Singapore
BRIC Brazil Russia China India MLP Master Limited Partnership
CAGR Compound annual growth rate MoM Month-on-month
CBOE Chicago Board Options Exchange MPC Monetary Policy Committee
CFO Cash from operations OAS Option-adjusted spread
CFROI Cash flow return on investment OECD Organisation for Economic Co-operation and Development
DCF Discounted cash flow OIS Overnight indexed swap
DM Developed Market OPEC Organization of Petroleum Exporting Countries
DMs Developed Markets PB Price-to-book value
EBITDA Earnings before interest taxes depreciation and amortization PE Price-earnings ratio
ECB European Central Bank PBoC Peoples Bank of China
EEMEA Eastern Europe Middle East and Africa PEG PE ratio divided by growth in EPS
EM Emerging Market PMI Purchasing Managers Index
EMEA Europe Middle East and Africa PPP Purchasing power parity
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 20
EMs Emerging Markets QE Quantitative easing
EMU European Monetary Union QoQ Quarter-on-quarter
EPS Earnings per share rhs right-hand side (for charts)
ETF Exchange traded funds RBA Reserve Bank of Australia
EV Enterprise value RBI Reserve Bank of India
FCF Free cash flow RBNZ Reserve Bank of New Zealand
Fed US Federal Reserve REIT Real estate investment trust
FFO Funds from operations ROE Return on equity
FOMC Federal Open Market Committee ROIC Return on invested capital
FX Foreign exchange RRR Reserve requirement ratio
G10 Group of Ten SAA Strategic asset allocation
G3 Group of Three SDR Special drawing rights
GDP Gross domestic product SNB Swiss National Bank
GPIF Government Pension Investment Fund TAA Tactical asset allocation
HC Hard currency TWI Trade-Weighted Index
HY High yield VIX Volatility Index
IBD Interest-bearing debt WTI West Texas Intermediate
IC Credit Suisse Investment Committee YoY Year-on-year
IG Investment grade YTD Year-to-date
ILB Inflation-linked bond Personal Consumption An indicator of the average increase in prices for all domestic Expenditure (PCE defla- personal consumption tor)
Currency codes frequently used in reports
Code Currency Code Currency
ARS Argentine peso KRW South Korean won
AUD Australian dollar MXN Mexican peso
BRL Brazilian real MYR Malaysian ringgit
CAD Canadian dollar NOK Norwegian krone
CHF Swiss franc NZD New Zealand dollar
CLP Chilean peso PEN Peruvian nuevo sol
CNY Chinese yuan PHP Philippine peso
COP Colombian peso PLN Polish złoty
CZK Czech koruna RUB Russian ruble
EUR Euro SEK Swedish kronakronor
GBP Pound sterling SGD Singapore dollar
HKD Hong Kong dollar THB Thai baht
HUF Hungarian forint TRY Turkish lira
IDR Indonesian rupiah TWD New Taiwan dollar
ILS Israeli new shekel USD United States dollar
INR Indian rupee ZAR South African rand
JPY Japanese yen
Important information on derivatives
Pricing Option premiums and prices mentioned are indicative only Option premiums and prices can be subject to very rapid changes The prices and premiums mentioned are as of the time indicated in the text and might have changed substantially in the meantime
Risks Derivatives are complex instruments and are intended for sale only to investors who are capable of understanding and assuming all the risks involved Investors must be aware that adding option positions to an existing portfolio may change the characteristics and behavior of that portfolio substantially A portfoliorsquos sensitivity to certain market moves can be heavily impacted by the leverage effect of options
Buying calls Investors who buy call options risk the loss of the entire premium paid if the underlying security trades below the strike price at expiration
Buying puts Investors who buy put options risk loss of the entire premium paid if the underlying security finishes above the strike price at expiration
Selling calls Investors who sell calls commit themselves to sell the underlying for the strike price even if the market price of the underlying is substantially higher Investors who sell covered calls (own the underlying security and sell a call) risk limiting their upside to the strike price plus the upfront premium received and may have their security called away if the security price exceeds the strike price of the short call Additionally the investor has full downside participation that is only partially offset by the premium received upfront If investors are forced to sell the underlying they might be subject to taxing Investors shorting naked calls (ie selling calls but without holding the underlying security) risk unlimited losses of security price less strike price
Selling puts Put sellers commit to buying the underlying security at the strike price in the event the security falls below the strike price The maximum loss is the full strike price less the premium received for selling the put
Buying call spreads Investors who buy call spreads (buy a call and sell a call with a higher strike) risk the loss of the entire premium paid if the underlying trades below the lower strike price at expiration The maximum gain from buying call spreads is the difference between the strike prices less the upfront premium paid
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 21
Selling naked call spreads Selling naked call spreads (sell a call and buy a farther out-of-the-money call with no underlying security position) Investors risk a maximum loss of the difference between the long call strike and the short call strike less the upfront premium taken in if the underlying security finishes above the long call strike at expiration The maximum gain is the upfront premium taken in if the security finishes below the short call strike at expiration
Buying put spreads Investors who buy put spreads (buy a put and sell a put with a lower strike price) also have a maximum loss of the upfront premium paid The maximum gain from buying put spreads is the difference between the strike prices less the upfront premium paid
Buying strangles Buying strangles (buy put and buy call) The maximum loss is the entire premium paid for both options if the underlying trades between the put strike and the call strike at expiration
Selling strangles or straddles Investors who are long a security and short a strangle or straddle risk capping their upside in the security to the strike price of the call that is sold plus the upfront premium received Additionally if the security trades below the strike price of the short put investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short put and will also experience losses in the security position if they owns shares The maximum potential loss is the full value of the strike price (less the value of the premium received) plus losses on the long security position Investors who are short naked strangles or straddles have unlimited potential loss since if the security trades above the call strike price investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short call In addition they are obligated to buy the security at the put strike price (less upfront premium received) if the security fin-ishes below the put strike price at expiration
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 22
Important information on mutual funds Fees and charges etc Different types of fees and commissions (subscription fee amount which must be retained in trust assets repurchase fee etc) are charged when investment trustsfunds are purchased and sold In addition apart from these fees and commissions trust and management fees and other fees (audit fee trust administrative charges carried interest etc) are charged and borne by you through your trust asset Fees and commissions borne by you will be a sum of these amounts Such fees and commissions vary depending on the investment trustfund and depending on the investment status and therefore we cannot provide specific amounts or calculation methods
For detailed information on fees and commissions etc of each re-spective investment trustfund please refer to the pre-contract documents (prospectus and other supplementary documents)
Important information on dividends bull Dividends are different to interest on deposits and are paid from the net asset value of investment trustsfunds Therefore when dividends are paid the base value (net asset value per unit) will decrease by an amount equivalent to the amount paid
bull Dividends may be paid exceeding the profit earned during the calculation period (trading profit including profits of dividends etc after expenses) In this case the base value (net asset value per unit) on the settlement date in this period will decrease compared to that on the settlement date in the previous period Also the level of dividends does not always reflect the rate of return for the investment trustfund during the calculation period
bull A part or all of dividends may be virtually equivalent to some repayment of the principal depending on the purchase price of the investment trustfund by an investor The same can be applied to a case that an increase in the base value (net asset value per unit) is smaller than a dividend amount due to the investment status after purchase of the investment trustfund
Please refer to the prospectus for details
Explanation of major risks (description pursuant to Ar-ticle 37 (Regulation on Advertising etc) of the Financial Instruments and Exchange Act etc) The risks described below are a summary of some general risks of investment trustsfunds (risks which have an impact on net asset value) and do not cover all risks Please refer to the pre-trade documents (prospectus and other supplementary documents)
Price volatility risk Investment trustsfunds invest mainly in equities bonds and derivative products etc The value of the investment trustfund will go up or down due to increases or decreases in the prices of such investments Further the value of such investments will be impacted by political and economic factors the financial standing of an issuer market demand and supply interest rates and other factors
Foreign currency risk Investment trustsfunds which invest in equities or bonds etc denominated in foreign currencies entail a foreign currency risk and the base value (or net asset value) of investment trustsfunds may change depending on the currency exchange rate Even when you do not experience a loss of invest-ment principal when calculated in the base currency you may suffer a loss at conversion into Japanese yen due to fluctuations in exchange rates Fur-thermore investment trustsfunds which utilize currency trading among multiple currencies may incur costs due to such currency trading depending on the difference in short-term interest rates between the currencies and you may suffer a loss
Credit risk For investment trustsfunds which invest in equities or bonds etc the prices of these investments may increase and decrease due to changes in the business or financial standing of the issuer and other factors and you may suffer a loss
Risk pertaining to liquidity Where there is sudden high volume in a particular investment or when sudden changes in the external environment surrounding markets triggers a sudden downturn in a market or period of market turmoil etc investments may not be flexibly traded In such a case a decline in the price of the investment may impact the base value (or net asset value) of the investment trust result-ing in a loss Further the management company may decide to stop calcu-lation of net asset prices or suspend sell or redemption claims
In addition for certain types of investment trustfund there is a risk that particular investments may be designated to a separate account (or side pocket) due to a lack of liquidity When a separate account is utilized by in-vestment trustsfunds restrictions may apply as to when such investments can be liquidated through a sell or redemption claim and there may be a re-striction in the timing or form of redemption claim permissible In particular for Fund of Fund investments when an investment trustfund makes an in-vestment without time limit in another fund the investment trustfund may be influenced by investment results in the other funds
Risk associated with an outflow of money received from sales orders When there is a large volume of sale orders in a short period of time the investment trustfund may be forced to sell structured securities at a lower rate than the prevailing market price to refund monies to investors and as a result you may suffer a loss Also alternative investment trustsfunds gen-erally have a limitation in selling or cashing out the investment compared to traditional investment trustsfunds Many alternative investment trustsfunds only accept a sell or redemption order on a monthly or quarterly basis and therefore you may not be able to rapidly exit the investment in for example times of economic uncertainty
Redemption risk Investment trustsfunds may become subject to mandatory redemption due to a certain reason For details please refer to the pre-trade documents (prospectus and other supplementary documents) before subscription
Concentration risk Investment trustsfunds which invest in a certain investment product or similar investment product group may significantly decrease in value (net asset value) under severe market circumstances
Country risk When changes in political economic and social conditions in investment destination countries and regions cause a dislocation in financial and security markets security prices may significantly change Also investments in emerging markets involve unique risks including small market size and trade volume political and social uncertainties undeveloped market infrastructure such as a clearing system undeveloped information disclosure system and legal system by supervising authorities large fluctuations in exchange rates restrictions on currency remittance to foreign countries and other factors and therefore may have larger price fluctuations compared to investments in major developed markets
Important information on non-Japanese stocks Please refer to the issuer information when you purchase non-Japanese stocks
Disclaimer This material is published solely for information purposes and is intended for the recipientrsquos sole use Credit Suisse does not represent or warrant its ac-curacy or completeness The material is not directly or indirectly intended for any investment solicitation and does not constitute an invitation or offer to conclude a transaction contract for financial instruments etc Credit Suisse accepts no liability for loss arising from the use of the information in this material It is recommended that you consult with the third party professional advisors as to legal or tax issues etc This material should not be reproduced or quoted without the prior express written consent of Credit Suisse The information and opinions expressed in this material were produced by Private Banking Division at Credit Suisse as of the date of writing and are subject to change without notice Views expressed in respect of particular investment products in this material may be different from or inconsistent with the ob-
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 23
servations and views of other divisions besides Private Banking due to the differences in evaluation criteria This material is solely distributed in Japan by Credit Suisse Securities (Japan) Limited Credit Suisse Securities (Japan) Limited will not distribute or forward it outside Japan
You may incur a loss as a result of fluctuations in stock prices if you invest in stocks In relation to foreign stocks you may incur a loss in such stocks due to foreign exchange rate fluctuations etc The market value of bonds is affected by interest rate fluctuations or changes in the financial standing of any issuer etc as such you may incur a loss if you sell such bonds before they are redeemed In relation to foreign bonds you may incur a loss in such bonds due to foreign exchange rate fluctuations etc The net asset value of mutual funds can fall as well as rise due to price changes of underlying stocks bonds etc and foreign exchange rate fluctuations and this may cause you to incur a loss
Structured securities and derivatives are complex instruments 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 of any structured security or transaction may be affected by changes in financial market conditions reference indices volatility and the credit quality of any issuer or reference issuer
Furthermore there are structured securities on which you may incur a loss since the redemption amounts are linked with fluctuations in reference indices etc There are also derivatives on which potential losses may exceed the amount of the initial investment Commission rates for any transactions will be as per the rates agreed between Credit Suisse and you For transactions conducted on a principal to principal basis between Credit Suisse and you the purchase or sale price will be the total consideration Transactions con-
ducted on a principal to principal basis including over the counter derivatives transactions will be quoted as a purchasebid price or selloffer price and for which a difference or spread may exist Charges in relation to transactions will be agreed prior to dealing as per our requirements under the Financial Instruments and Exchange Law
By purchasing financial instruments etc you may incur a loss or a loss in excess of the principal as a result of fluctuations in market prices or other financial indices etc Please read carefully the Pre-Contract Documentation provided for an explanation of associated risks and commissions etc of individual financial instruments etc prior to purchase Please contact your Relationship Manager if you have any questions
UNITED STATES NEITHER THIS REPORT NOR ANY COPY THEREOF MAY BE SENT TAKEN INTO OR DISTRIBUTED IN THE UNITED STATES OR TO ANY US PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE US SECURITIES ACT OF 1933 AS AMENDED)
Credit Suisse Securities (Japan) Limited Financial Instruments Dealer Di-rector-General of Kanto Local Finance Bureau (Kinsho) No 66 a member of Japan Securities Dealers Association Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association
Copyright copy 2021 Credit Suisse Group AG andor its affiliates All rights reserved
21C013A_IS_J
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 24
Imprint
Publisher Credit Suisse Private Banking amp Wealth Management Investment Solutions amp Products
Information about other Investment Solutions amp Products publications Internet httpsinvestmentcredit-suissecom
Intranet (for employees only) httpsisrcsintranet
Subscription (clients) Please contact your customer advisor to subscribe to this publication
Subscription (internal) For information on subscriptions please visit httpisrcsintranetsubscriptions
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 25
Foreign exchange
Keep favoring cyclical currencies We maintain a short USD bias and prefer commodity and cyclical currencies such as the EUR GBP or SEK
Within our positive emerging market stance we particularly like the CNY KRW BRL and RUB
Luca Bindelli Head of Fixed Income and Currency and Commodity Strategy
The USD was broadly flat against other major currencies over the last month Investorsrsquo focus on US fiscal stimulus and an expected rise in US inflation allowed for some normalization in previously large USD short positions While the repricing of near-term growth expectations also in light of a more rapid US vaccination campaign created temporary USD resilience we think this improvement is likely partly reflected in the USD already We maintain that as the Federal Reserve (Fed) keeps short-term rates close to zero for longer there is little room for sustained gains in the USD Moreover US fiscal stimulus will not only deteriorate fiscal balances but also deepen the current account deficit This will also benefit the global econ-omy through improved global trade and sentiment which should weigh on the USD Uncertainties relating to new COVID-19 variants and extended USD short positioning re-main a risk in the short term
Constructive on cyclical currencies A slow start to vaccine rollouts and renewed political risks in Italy somewhat dented sentiment toward the EUR in early February Even so the single currency remained stable vs the USD The Eurozone is facing a delayed recovery but this is consensus already and likely temporary in nature With political risks now subsiding the EU recovery fund operational in the next quarter and the global growth recovery benefitting the export-oriented Eurozone we think EURUSD can gain some further ground and target 124 in 3M Elsewhere in Europe we also remain positive on the SEK and the GBP
vs the USD With global reflation set to continue and com-modity prices likely to remain supported through the ongoing rebalancing we still favor commodity currencies in particular the NZD CAD and NOK
BRL RUB CNY and KRW preferred Emerging market (EM) currencies were broadly range-bound on an index level over the last month but with significant re-turn dispersion across currencies The main arguments sup-porting our attractive view on EM FX remain in place We continue to see further scope for a broad appreciation of EM FX versus the USD Even though the EM economic recovery has peaked economic activity still looks solid relative to de-veloped markets External positions remain in good shape and non-resident flows are still supportive In addition with inflation bottoming and food prices increasing scope for dovish EM central bank surprises seems to be exhausted This should be favorable for EM carry versus the USD
The RUB BRL CNY and KRW remain our preferred curren-cies in EM Both the RUB and BRL are cheaply valued Addi-tionally the RUB should profit from attractive risk-adjusted carry and the BRL from more hawkish central bank expecta-tions In Asia we remain positive on the CNY and KRW and neutral on the other Asian FX We lower our 3M USDCNY target to 635 but keep our 12M target at 625 Our USDKRW targets remain unchanged at 1060 and 1010 in 3M and 12M respectively We retain a mild downward bias on the other USDAsia pairs expecting broad USD weak-ness (12022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 17
Forecasts
At a glance More information on the forecasts and estimates is available Credit Selected indices on request Past performance is not an indicator of future
Yield Spread Duration 3M TR 12M TR fore-performance Performance can be affected by commissions () (bp) (years) forecast cast fees or other charges as well as exchange rate fluctuations BC Global Aggregate 091 33 731 -010 010
BC Global Treasuries 058 9 862 -030 -050
BC Global IG Corp 141 94 735 033 130 Central bank rate10-year government bonds BC Global HY Corp 429 378 416 062 247
CB rate 10Y JPM EMBI Global Di- 480 344 764 032 126 yield versified HC
in Spot 3M 12M Spot 3M 12M
CHF -075 -075 -075 -026 -030 -030 BC = Barclays Capital IG= Investment Grade JPM = JP Morgan (EMBI+) Index data as of 1522021 Forecast as on 1522021
EUR -050 -050 -050 -035 -030 -030 These forecasts are no reliable indicators of future performance Source Bloomberg
USD 013 000-025 000-025 130 140 150 Credit Suisse GBP 010 010 010 062 050 060
AUD 010 010 010 139 130 140
JPY -010 -010 -010 010 010 010 Foreign exchange
Spot 3M 12M Spot rates are closing prices as of 1622021 Forecast date 1122021 These
EURUSD 121 124 125 forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC USDCHF 089 087 088
EURCHF 108 108 110
USDJPY 10594 10200 10000
Equities EURGBP 087 087 086
GBPUSD 139 143 145 Index Spot PE Div y 3M 12M () AUDUSD 078 078 079
MSCI AC World 1679 202 22 1690 1790 USDCAD 126 123 120
US SampP 500 3933 234 21 3950 4150 EURSEK 1004 1010 1020
Eurostoxx 50 3726 181 26 3700 3850 EURNOK 1016 1020 1020
UK FTSE 100 6749 143 43 6700 7000 EURPLN 449 457 459
Japan Topix 1965 185 21 1940 1970 USDCNY 646 635 625
Australia SampPASX 6917 207 38 6900 7150 USDSGD 132 131 128
200 USDKRW 109898 106000 101000
Switzerland SMI 10908 186 28 10950 11400 USDINR 7264 7270 7200
MSCI Emerging Mar- 190621 166 22 194000 207000 USDBRL 538 525 530 kets USDMXN 1994 2050 2150
Prices as of 1622021 Forecast as on 1122021 Gross return (incl dividends) Spot rates are as of 1722021 These forecasts are no reliable indicators of future performance Source Bloomberg These forecasts are no reliable indicators of future performance Source Bloomberg Datastream Credit SuisseIDC Credit SuisseIDC
Commodities Real GDP growth and inflation Spot 3M 12M GDP Inflation
Gold (USDoz) 1793 1900 2000 growth
Silver (USDoz) 273 27 30 in 2020 2021 2022 2020 2021 2022
Platinum (USDoz) 12624 1300 1250 CH -32 35 20 -07 03 02
Palladium (USDoz) 2390 2400 2500 EMU -72 50 42 03 06 10
Copper (USDton) 8416 8300 7900 USA -35 57 35 12 20 21
WTI Crude Oil (USDbbl) 600 60 60 UK -100 53 75 09 14 18
Bloomberg Commodity index 1815 181 186 Australia -20 35 32 08 15 15
Japan -49 17 19 -02 01 03
Spot rates are as of 1722021 forecast as on 1122021 China 23 71 52 25 11 17 These forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC Last forecast update 10022021
These forecasts are no reliable indicators of future performance Source Bloomberg Credit Suisse
(17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 18
Glossary
Risk warnings
Emerging markets Emerging markets are located in countries that possess one or more of the following characteristics a certain degree of political instability relatively unpredictable financial markets and economic growth patterns a financial market that is still at the development stage or a weak economy Emerging market investments usually result in higher risks as a result of political economic credit exchange rate market liquidity legal settlement market shareholder and creditor risks
Hedge funds Regardless of structure hedge funds are not limited to any particular investment discipline or trading strategy and seek to profit in all kinds of markets by using leverage derivative instruments and speculative investment strategies that may increase the risk of investment loss
Commodity investments Commodity transactions carry a high degree of risk and may not be suitable for many private investors The extent of loss due to market movements can be substantial or even result in a total loss
Real estate Investors in real estate are exposed to liquidity foreign currency and other risks including cyclical risk rental and local market risk as well as environmental risk and changes to the legal situation
Currency risks Investments in foreign currencies involve the additional risk that the foreign currency might lose value against the investorrsquos reference currency
Equity risk Equities are subject to market forces and hence fluctuations in value which are not entirely predictable
Market risk Financial markets rise and fall based on economic conditions inflationary pressures world news and business-specific reports While trends may be detected over time it can be difficult to predict the direction of the market and individual stocks This variability puts stock investments at risk of losing value
High Yield bond risk High Yield Bonds are typically rated below investment grade or are unrated and as such are often subject to a higher risk of issuer default
Perpetual Bond risk Perpetual Bonds have no maturity date and therefore the Interest pay-out depends on the viability of the issuer in the very long term
Subordinated Bond risk In case of liquidation of the issuer investors can only get back the principal after other senior creditors are paid
Risk of Bonds with variable deferral of interest terms Investors would face uncertainty over the amount and time of the interest payments to be received
Callable bond risk Investors face reinvestment risk when the issuer exercises its right to redeem the bond before it matures
Risk of Bonds with extendable maturity date Investors would not have a definite schedule of principal repayment
Convertible or exchangeable bond risk Investors are subject to both equity and bond investment risk
Cocos risk The bond may be written-off fully or partially or converted to common stock on the occurrence of a trigger event
Explanation of indices frequently used in reports
Index Comment
Australia SampPASX 200 SampPASX 200 is an Australian market-capitalization-weighted and float-adjusted stock index calculated by Standard and Poors
BC High Yield Corp USD The US Corporate High Yield Index measures USD-denominated non-investment grade fixed-rate and taxable corporate bonds The index is calculated by Barclays
BC High Yield Pan EUR The Euro Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate EUR The US Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate USD The IG Corporate Index tracks the fixed-rate investment-grade dollar-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
Canada SampPTSX comp The SampPTSX composite index is the Canadian equivalent of the SampP 500 Index in the USA The index contains the largest stocks traded on the Toronto Stock Exchange
Consumer Confidence Indices Consumer Confidence Indices (CCIs) are based on surveys of consumers spending intentions and economic situations as well as their concerns and expectations for the immediate future
CS Hedge Fund Index The Credit Suisse Hedge Fund Index is compiled by Credit Suisse Hedge Index LLC It is an asset-weighted hedge fund index and includes only funds as opposed to separate accounts The index reflects performance net of all hedge fund component performance fees and expenses
CS LSI ex govt CHF The Liquid Swiss Index ex govt CHF is a market-capitalized bond index representing the most liquid and tradable portion of the Swiss bond market excluding Swiss government bonds The index is calculated by Credit Suisse
DAX The German Stock Index stock represents 30 of the largest and most liquid German companies that trade on the Frankfurt Exchange
DXY A measure of the value of the US dollar relative to the majority of its most important trading partners The US Dollar Index is similar to other trade-weighted indices which also use the exchange rates from the same major currencies
Eurostoxx 50 Eurostoxx 50 is a market-capitalization-weighted stock index of 50 leading blue-chip companies in the Eurozone
FTSE EPRANAREIT Global Real Estate Index Series The FTSE EPRANAREIT Global Real Estate Index Series is designed to represent general trends in eligible real estate equities worldwide
Hedge Fund Barometer The Hedge Fund Barometer is a proprietary Credit Suisse scoring tool that measures market conditions for hedge fund strategies It comprises four components liquidity volatility systemic risks and business cycle
Japan Topix TOPIX also known as the Tokyo Stock Price Index tracks all large Japanese companies listed in the stock exchanges first section The index calculation excludes temporary issues and preferred stocks
JPM EM hard curr USD The Emerging Market Bond Index Plus tracks the total return of hard-currency sovereign bonds across the most liquid emerging markets The index encompasses US-denominated Brady bonds (dollar-denominated bonds issued by Latin American countries) loans and Eurobonds
JPM EM local curr hedg USD The JPMorgan Government Bond Index tracks local currency bonds issued by emerging market governments across the most accessible markets for international investors
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 19
MSCI AC AsiaPacific The MSCI All Country Asia Pacific Index captures large and mid cap representation across 5 developed market countries and 8 emerging markets countries in the Asia Pacific region With 1000 constituents the index covers approximately 85 of the free float-adjusted market capitalization in each country
MSCI AC World The MSCI All Country World Index captures large and mid cap representation across 23 developed markets and 23 emerging market countries With roughly 2480 constituents the index covers around 85 of the global investable equity opportunity set
MSCI Emerging Markets MSCI Emerging Markets is a free-float-weighted Index designed to measure equity market performance in global emerging markets The index is developed and calculated by Morgan Stanley Capital International
MSCI EMU The MSCI EMU Index (European Economic and Monetary Union) captures large and mid cap representation across the 10 Developed Markets countries in the EMU With 237 constituents the index covers approximately 85 of the free float-adjusted market capitalization of the EMU
MSCI Europe The MSCI Europe Index captures large and mid cap representation across 15 developed markets countries in Europe With 442 constituents the index covers approximately 85 of the free float-adjusted market capitalization across the European developed markets equity universe
MSCI UK The MSCI United Kingdom Index is designed to measure the performance of the large and mid cap segments of the UK market With 111 constituents the index covers approximately 85 of the free float-adjusted market capitalization in the UK
MSCI World MSCI World is an index of global equity markets developed and calculated by Morgan Stanley Capital International Calculations are based on closing prices with dividends reinvested
OECD Composite Leading Indicators OECD Composite Leading Indicators (CLIs) are designed to provide early signals of turning points in business cycles with components that measure early stages of production respond to changes in economic activity and are sensitive to expectations of future activity
Purchasing Managers Indices Purchasing Managers Indices (PMIs) are economic indicators derived from monthly surveys of private-sector companies The two principal producers of PMIs are Markit Group which conducts PMIs for over 30 countries worldwide and the Institute for Supply Management (ISM) which conducts PMIs for the United States The indices include additional sub-indices for manufac-turing surveys such as new orders employment exports stocks of raw materials and finished goods prices of inputs and finished goods and services
Russell 1000 Growth Index The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe based on 1000 large-cap companies with higher price-to-book ratios and higher forecast growth values
Russell 1000 Index The Russell 1000 Index is a stock market index that represents the highest-ranking 1000 stocks in the Russell 3000 Index (encompassing the 3000 largest US-traded stocks with the underlying companies all incorporated in the USA) and representing about 90 of the total market capitalization of that index The Russell 1000 Index has a weighted average market capitalization of USD 81 billion and the median market capitalization is approximately USD 46 billion
Russell 1000 Value Index The Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe based on 1000 large-cap companies with lower price-to-book ratios and lower expected growth values
Switzerland SMI The Swiss Market Index is made up of 20 of the largest companies listed of the Swiss Performance Index universe It represents 85 of the free-float capitalization of the Swiss equity market As a price index the SMI is not adjusted for dividends
UK FTSE 100 FTSE 100 is a market-capitalization-weighted stock index that represents 100 of the most highly capitalized companies traded on the London Stock exchange The equities have an investibility weighting in the index calculation
US SampP 500 Standard and Poors 500 is a capitalization-weighted stock index representing all major industries in the USA which measures the performance of the domestic economy through changes in the aggregate market value
Abbreviations frequently used in reports
Abb Description Abb Description
3612 MMA 3612 month moving average IMF International Monetary Fund
AI Alternative investments LatAm Latin America
APAC Asia Pacific Libor London interbank offered rate
bbl barrel m bd Million barrels per day
BI Bank Indonesia M1 A measure of the money supply that includes all physical money such as coins and currency as well as demand deposits checking accounts and negotiable order of withdrawal accounts
BoC Bank of Canada M2 A measure of money supply that includes cash and checking deposits (M1) as well as savings deposits money market mutual funds and other time deposits
BoE Bank of England M3 A measure of money supply that includes M2 as well as large time deposits institutional money market funds short-term re-purchase agreements and other larger liquid assets
BoJ Bank of Japan MampA Mergers and acquisitions
bp Basis points MAS Monetary Authority of Singapore
BRIC Brazil Russia China India MLP Master Limited Partnership
CAGR Compound annual growth rate MoM Month-on-month
CBOE Chicago Board Options Exchange MPC Monetary Policy Committee
CFO Cash from operations OAS Option-adjusted spread
CFROI Cash flow return on investment OECD Organisation for Economic Co-operation and Development
DCF Discounted cash flow OIS Overnight indexed swap
DM Developed Market OPEC Organization of Petroleum Exporting Countries
DMs Developed Markets PB Price-to-book value
EBITDA Earnings before interest taxes depreciation and amortization PE Price-earnings ratio
ECB European Central Bank PBoC Peoples Bank of China
EEMEA Eastern Europe Middle East and Africa PEG PE ratio divided by growth in EPS
EM Emerging Market PMI Purchasing Managers Index
EMEA Europe Middle East and Africa PPP Purchasing power parity
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 20
EMs Emerging Markets QE Quantitative easing
EMU European Monetary Union QoQ Quarter-on-quarter
EPS Earnings per share rhs right-hand side (for charts)
ETF Exchange traded funds RBA Reserve Bank of Australia
EV Enterprise value RBI Reserve Bank of India
FCF Free cash flow RBNZ Reserve Bank of New Zealand
Fed US Federal Reserve REIT Real estate investment trust
FFO Funds from operations ROE Return on equity
FOMC Federal Open Market Committee ROIC Return on invested capital
FX Foreign exchange RRR Reserve requirement ratio
G10 Group of Ten SAA Strategic asset allocation
G3 Group of Three SDR Special drawing rights
GDP Gross domestic product SNB Swiss National Bank
GPIF Government Pension Investment Fund TAA Tactical asset allocation
HC Hard currency TWI Trade-Weighted Index
HY High yield VIX Volatility Index
IBD Interest-bearing debt WTI West Texas Intermediate
IC Credit Suisse Investment Committee YoY Year-on-year
IG Investment grade YTD Year-to-date
ILB Inflation-linked bond Personal Consumption An indicator of the average increase in prices for all domestic Expenditure (PCE defla- personal consumption tor)
Currency codes frequently used in reports
Code Currency Code Currency
ARS Argentine peso KRW South Korean won
AUD Australian dollar MXN Mexican peso
BRL Brazilian real MYR Malaysian ringgit
CAD Canadian dollar NOK Norwegian krone
CHF Swiss franc NZD New Zealand dollar
CLP Chilean peso PEN Peruvian nuevo sol
CNY Chinese yuan PHP Philippine peso
COP Colombian peso PLN Polish złoty
CZK Czech koruna RUB Russian ruble
EUR Euro SEK Swedish kronakronor
GBP Pound sterling SGD Singapore dollar
HKD Hong Kong dollar THB Thai baht
HUF Hungarian forint TRY Turkish lira
IDR Indonesian rupiah TWD New Taiwan dollar
ILS Israeli new shekel USD United States dollar
INR Indian rupee ZAR South African rand
JPY Japanese yen
Important information on derivatives
Pricing Option premiums and prices mentioned are indicative only Option premiums and prices can be subject to very rapid changes The prices and premiums mentioned are as of the time indicated in the text and might have changed substantially in the meantime
Risks Derivatives are complex instruments and are intended for sale only to investors who are capable of understanding and assuming all the risks involved Investors must be aware that adding option positions to an existing portfolio may change the characteristics and behavior of that portfolio substantially A portfoliorsquos sensitivity to certain market moves can be heavily impacted by the leverage effect of options
Buying calls Investors who buy call options risk the loss of the entire premium paid if the underlying security trades below the strike price at expiration
Buying puts Investors who buy put options risk loss of the entire premium paid if the underlying security finishes above the strike price at expiration
Selling calls Investors who sell calls commit themselves to sell the underlying for the strike price even if the market price of the underlying is substantially higher Investors who sell covered calls (own the underlying security and sell a call) risk limiting their upside to the strike price plus the upfront premium received and may have their security called away if the security price exceeds the strike price of the short call Additionally the investor has full downside participation that is only partially offset by the premium received upfront If investors are forced to sell the underlying they might be subject to taxing Investors shorting naked calls (ie selling calls but without holding the underlying security) risk unlimited losses of security price less strike price
Selling puts Put sellers commit to buying the underlying security at the strike price in the event the security falls below the strike price The maximum loss is the full strike price less the premium received for selling the put
Buying call spreads Investors who buy call spreads (buy a call and sell a call with a higher strike) risk the loss of the entire premium paid if the underlying trades below the lower strike price at expiration The maximum gain from buying call spreads is the difference between the strike prices less the upfront premium paid
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 21
Selling naked call spreads Selling naked call spreads (sell a call and buy a farther out-of-the-money call with no underlying security position) Investors risk a maximum loss of the difference between the long call strike and the short call strike less the upfront premium taken in if the underlying security finishes above the long call strike at expiration The maximum gain is the upfront premium taken in if the security finishes below the short call strike at expiration
Buying put spreads Investors who buy put spreads (buy a put and sell a put with a lower strike price) also have a maximum loss of the upfront premium paid The maximum gain from buying put spreads is the difference between the strike prices less the upfront premium paid
Buying strangles Buying strangles (buy put and buy call) The maximum loss is the entire premium paid for both options if the underlying trades between the put strike and the call strike at expiration
Selling strangles or straddles Investors who are long a security and short a strangle or straddle risk capping their upside in the security to the strike price of the call that is sold plus the upfront premium received Additionally if the security trades below the strike price of the short put investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short put and will also experience losses in the security position if they owns shares The maximum potential loss is the full value of the strike price (less the value of the premium received) plus losses on the long security position Investors who are short naked strangles or straddles have unlimited potential loss since if the security trades above the call strike price investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short call In addition they are obligated to buy the security at the put strike price (less upfront premium received) if the security fin-ishes below the put strike price at expiration
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 22
Important information on mutual funds Fees and charges etc Different types of fees and commissions (subscription fee amount which must be retained in trust assets repurchase fee etc) are charged when investment trustsfunds are purchased and sold In addition apart from these fees and commissions trust and management fees and other fees (audit fee trust administrative charges carried interest etc) are charged and borne by you through your trust asset Fees and commissions borne by you will be a sum of these amounts Such fees and commissions vary depending on the investment trustfund and depending on the investment status and therefore we cannot provide specific amounts or calculation methods
For detailed information on fees and commissions etc of each re-spective investment trustfund please refer to the pre-contract documents (prospectus and other supplementary documents)
Important information on dividends bull Dividends are different to interest on deposits and are paid from the net asset value of investment trustsfunds Therefore when dividends are paid the base value (net asset value per unit) will decrease by an amount equivalent to the amount paid
bull Dividends may be paid exceeding the profit earned during the calculation period (trading profit including profits of dividends etc after expenses) In this case the base value (net asset value per unit) on the settlement date in this period will decrease compared to that on the settlement date in the previous period Also the level of dividends does not always reflect the rate of return for the investment trustfund during the calculation period
bull A part or all of dividends may be virtually equivalent to some repayment of the principal depending on the purchase price of the investment trustfund by an investor The same can be applied to a case that an increase in the base value (net asset value per unit) is smaller than a dividend amount due to the investment status after purchase of the investment trustfund
Please refer to the prospectus for details
Explanation of major risks (description pursuant to Ar-ticle 37 (Regulation on Advertising etc) of the Financial Instruments and Exchange Act etc) The risks described below are a summary of some general risks of investment trustsfunds (risks which have an impact on net asset value) and do not cover all risks Please refer to the pre-trade documents (prospectus and other supplementary documents)
Price volatility risk Investment trustsfunds invest mainly in equities bonds and derivative products etc The value of the investment trustfund will go up or down due to increases or decreases in the prices of such investments Further the value of such investments will be impacted by political and economic factors the financial standing of an issuer market demand and supply interest rates and other factors
Foreign currency risk Investment trustsfunds which invest in equities or bonds etc denominated in foreign currencies entail a foreign currency risk and the base value (or net asset value) of investment trustsfunds may change depending on the currency exchange rate Even when you do not experience a loss of invest-ment principal when calculated in the base currency you may suffer a loss at conversion into Japanese yen due to fluctuations in exchange rates Fur-thermore investment trustsfunds which utilize currency trading among multiple currencies may incur costs due to such currency trading depending on the difference in short-term interest rates between the currencies and you may suffer a loss
Credit risk For investment trustsfunds which invest in equities or bonds etc the prices of these investments may increase and decrease due to changes in the business or financial standing of the issuer and other factors and you may suffer a loss
Risk pertaining to liquidity Where there is sudden high volume in a particular investment or when sudden changes in the external environment surrounding markets triggers a sudden downturn in a market or period of market turmoil etc investments may not be flexibly traded In such a case a decline in the price of the investment may impact the base value (or net asset value) of the investment trust result-ing in a loss Further the management company may decide to stop calcu-lation of net asset prices or suspend sell or redemption claims
In addition for certain types of investment trustfund there is a risk that particular investments may be designated to a separate account (or side pocket) due to a lack of liquidity When a separate account is utilized by in-vestment trustsfunds restrictions may apply as to when such investments can be liquidated through a sell or redemption claim and there may be a re-striction in the timing or form of redemption claim permissible In particular for Fund of Fund investments when an investment trustfund makes an in-vestment without time limit in another fund the investment trustfund may be influenced by investment results in the other funds
Risk associated with an outflow of money received from sales orders When there is a large volume of sale orders in a short period of time the investment trustfund may be forced to sell structured securities at a lower rate than the prevailing market price to refund monies to investors and as a result you may suffer a loss Also alternative investment trustsfunds gen-erally have a limitation in selling or cashing out the investment compared to traditional investment trustsfunds Many alternative investment trustsfunds only accept a sell or redemption order on a monthly or quarterly basis and therefore you may not be able to rapidly exit the investment in for example times of economic uncertainty
Redemption risk Investment trustsfunds may become subject to mandatory redemption due to a certain reason For details please refer to the pre-trade documents (prospectus and other supplementary documents) before subscription
Concentration risk Investment trustsfunds which invest in a certain investment product or similar investment product group may significantly decrease in value (net asset value) under severe market circumstances
Country risk When changes in political economic and social conditions in investment destination countries and regions cause a dislocation in financial and security markets security prices may significantly change Also investments in emerging markets involve unique risks including small market size and trade volume political and social uncertainties undeveloped market infrastructure such as a clearing system undeveloped information disclosure system and legal system by supervising authorities large fluctuations in exchange rates restrictions on currency remittance to foreign countries and other factors and therefore may have larger price fluctuations compared to investments in major developed markets
Important information on non-Japanese stocks Please refer to the issuer information when you purchase non-Japanese stocks
Disclaimer This material is published solely for information purposes and is intended for the recipientrsquos sole use Credit Suisse does not represent or warrant its ac-curacy or completeness The material is not directly or indirectly intended for any investment solicitation and does not constitute an invitation or offer to conclude a transaction contract for financial instruments etc Credit Suisse accepts no liability for loss arising from the use of the information in this material It is recommended that you consult with the third party professional advisors as to legal or tax issues etc This material should not be reproduced or quoted without the prior express written consent of Credit Suisse The information and opinions expressed in this material were produced by Private Banking Division at Credit Suisse as of the date of writing and are subject to change without notice Views expressed in respect of particular investment products in this material may be different from or inconsistent with the ob-
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 23
servations and views of other divisions besides Private Banking due to the differences in evaluation criteria This material is solely distributed in Japan by Credit Suisse Securities (Japan) Limited Credit Suisse Securities (Japan) Limited will not distribute or forward it outside Japan
You may incur a loss as a result of fluctuations in stock prices if you invest in stocks In relation to foreign stocks you may incur a loss in such stocks due to foreign exchange rate fluctuations etc The market value of bonds is affected by interest rate fluctuations or changes in the financial standing of any issuer etc as such you may incur a loss if you sell such bonds before they are redeemed In relation to foreign bonds you may incur a loss in such bonds due to foreign exchange rate fluctuations etc The net asset value of mutual funds can fall as well as rise due to price changes of underlying stocks bonds etc and foreign exchange rate fluctuations and this may cause you to incur a loss
Structured securities and derivatives are complex instruments 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 of any structured security or transaction may be affected by changes in financial market conditions reference indices volatility and the credit quality of any issuer or reference issuer
Furthermore there are structured securities on which you may incur a loss since the redemption amounts are linked with fluctuations in reference indices etc There are also derivatives on which potential losses may exceed the amount of the initial investment Commission rates for any transactions will be as per the rates agreed between Credit Suisse and you For transactions conducted on a principal to principal basis between Credit Suisse and you the purchase or sale price will be the total consideration Transactions con-
ducted on a principal to principal basis including over the counter derivatives transactions will be quoted as a purchasebid price or selloffer price and for which a difference or spread may exist Charges in relation to transactions will be agreed prior to dealing as per our requirements under the Financial Instruments and Exchange Law
By purchasing financial instruments etc you may incur a loss or a loss in excess of the principal as a result of fluctuations in market prices or other financial indices etc Please read carefully the Pre-Contract Documentation provided for an explanation of associated risks and commissions etc of individual financial instruments etc prior to purchase Please contact your Relationship Manager if you have any questions
UNITED STATES NEITHER THIS REPORT NOR ANY COPY THEREOF MAY BE SENT TAKEN INTO OR DISTRIBUTED IN THE UNITED STATES OR TO ANY US PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE US SECURITIES ACT OF 1933 AS AMENDED)
Credit Suisse Securities (Japan) Limited Financial Instruments Dealer Di-rector-General of Kanto Local Finance Bureau (Kinsho) No 66 a member of Japan Securities Dealers Association Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association
Copyright copy 2021 Credit Suisse Group AG andor its affiliates All rights reserved
21C013A_IS_J
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 24
Imprint
Publisher Credit Suisse Private Banking amp Wealth Management Investment Solutions amp Products
Information about other Investment Solutions amp Products publications Internet httpsinvestmentcredit-suissecom
Intranet (for employees only) httpsisrcsintranet
Subscription (clients) Please contact your customer advisor to subscribe to this publication
Subscription (internal) For information on subscriptions please visit httpisrcsintranetsubscriptions
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 25
Forecasts
At a glance More information on the forecasts and estimates is available Credit Selected indices on request Past performance is not an indicator of future
Yield Spread Duration 3M TR 12M TR fore-performance Performance can be affected by commissions () (bp) (years) forecast cast fees or other charges as well as exchange rate fluctuations BC Global Aggregate 091 33 731 -010 010
BC Global Treasuries 058 9 862 -030 -050
BC Global IG Corp 141 94 735 033 130 Central bank rate10-year government bonds BC Global HY Corp 429 378 416 062 247
CB rate 10Y JPM EMBI Global Di- 480 344 764 032 126 yield versified HC
in Spot 3M 12M Spot 3M 12M
CHF -075 -075 -075 -026 -030 -030 BC = Barclays Capital IG= Investment Grade JPM = JP Morgan (EMBI+) Index data as of 1522021 Forecast as on 1522021
EUR -050 -050 -050 -035 -030 -030 These forecasts are no reliable indicators of future performance Source Bloomberg
USD 013 000-025 000-025 130 140 150 Credit Suisse GBP 010 010 010 062 050 060
AUD 010 010 010 139 130 140
JPY -010 -010 -010 010 010 010 Foreign exchange
Spot 3M 12M Spot rates are closing prices as of 1622021 Forecast date 1122021 These
EURUSD 121 124 125 forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC USDCHF 089 087 088
EURCHF 108 108 110
USDJPY 10594 10200 10000
Equities EURGBP 087 087 086
GBPUSD 139 143 145 Index Spot PE Div y 3M 12M () AUDUSD 078 078 079
MSCI AC World 1679 202 22 1690 1790 USDCAD 126 123 120
US SampP 500 3933 234 21 3950 4150 EURSEK 1004 1010 1020
Eurostoxx 50 3726 181 26 3700 3850 EURNOK 1016 1020 1020
UK FTSE 100 6749 143 43 6700 7000 EURPLN 449 457 459
Japan Topix 1965 185 21 1940 1970 USDCNY 646 635 625
Australia SampPASX 6917 207 38 6900 7150 USDSGD 132 131 128
200 USDKRW 109898 106000 101000
Switzerland SMI 10908 186 28 10950 11400 USDINR 7264 7270 7200
MSCI Emerging Mar- 190621 166 22 194000 207000 USDBRL 538 525 530 kets USDMXN 1994 2050 2150
Prices as of 1622021 Forecast as on 1122021 Gross return (incl dividends) Spot rates are as of 1722021 These forecasts are no reliable indicators of future performance Source Bloomberg These forecasts are no reliable indicators of future performance Source Bloomberg Datastream Credit SuisseIDC Credit SuisseIDC
Commodities Real GDP growth and inflation Spot 3M 12M GDP Inflation
Gold (USDoz) 1793 1900 2000 growth
Silver (USDoz) 273 27 30 in 2020 2021 2022 2020 2021 2022
Platinum (USDoz) 12624 1300 1250 CH -32 35 20 -07 03 02
Palladium (USDoz) 2390 2400 2500 EMU -72 50 42 03 06 10
Copper (USDton) 8416 8300 7900 USA -35 57 35 12 20 21
WTI Crude Oil (USDbbl) 600 60 60 UK -100 53 75 09 14 18
Bloomberg Commodity index 1815 181 186 Australia -20 35 32 08 15 15
Japan -49 17 19 -02 01 03
Spot rates are as of 1722021 forecast as on 1122021 China 23 71 52 25 11 17 These forecasts are no reliable indicators of future performance Source Bloomberg Credit SuisseIDC Last forecast update 10022021
These forecasts are no reliable indicators of future performance Source Bloomberg Credit Suisse
(17022021)
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 18
Glossary
Risk warnings
Emerging markets Emerging markets are located in countries that possess one or more of the following characteristics a certain degree of political instability relatively unpredictable financial markets and economic growth patterns a financial market that is still at the development stage or a weak economy Emerging market investments usually result in higher risks as a result of political economic credit exchange rate market liquidity legal settlement market shareholder and creditor risks
Hedge funds Regardless of structure hedge funds are not limited to any particular investment discipline or trading strategy and seek to profit in all kinds of markets by using leverage derivative instruments and speculative investment strategies that may increase the risk of investment loss
Commodity investments Commodity transactions carry a high degree of risk and may not be suitable for many private investors The extent of loss due to market movements can be substantial or even result in a total loss
Real estate Investors in real estate are exposed to liquidity foreign currency and other risks including cyclical risk rental and local market risk as well as environmental risk and changes to the legal situation
Currency risks Investments in foreign currencies involve the additional risk that the foreign currency might lose value against the investorrsquos reference currency
Equity risk Equities are subject to market forces and hence fluctuations in value which are not entirely predictable
Market risk Financial markets rise and fall based on economic conditions inflationary pressures world news and business-specific reports While trends may be detected over time it can be difficult to predict the direction of the market and individual stocks This variability puts stock investments at risk of losing value
High Yield bond risk High Yield Bonds are typically rated below investment grade or are unrated and as such are often subject to a higher risk of issuer default
Perpetual Bond risk Perpetual Bonds have no maturity date and therefore the Interest pay-out depends on the viability of the issuer in the very long term
Subordinated Bond risk In case of liquidation of the issuer investors can only get back the principal after other senior creditors are paid
Risk of Bonds with variable deferral of interest terms Investors would face uncertainty over the amount and time of the interest payments to be received
Callable bond risk Investors face reinvestment risk when the issuer exercises its right to redeem the bond before it matures
Risk of Bonds with extendable maturity date Investors would not have a definite schedule of principal repayment
Convertible or exchangeable bond risk Investors are subject to both equity and bond investment risk
Cocos risk The bond may be written-off fully or partially or converted to common stock on the occurrence of a trigger event
Explanation of indices frequently used in reports
Index Comment
Australia SampPASX 200 SampPASX 200 is an Australian market-capitalization-weighted and float-adjusted stock index calculated by Standard and Poors
BC High Yield Corp USD The US Corporate High Yield Index measures USD-denominated non-investment grade fixed-rate and taxable corporate bonds The index is calculated by Barclays
BC High Yield Pan EUR The Euro Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate EUR The US Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate USD The IG Corporate Index tracks the fixed-rate investment-grade dollar-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
Canada SampPTSX comp The SampPTSX composite index is the Canadian equivalent of the SampP 500 Index in the USA The index contains the largest stocks traded on the Toronto Stock Exchange
Consumer Confidence Indices Consumer Confidence Indices (CCIs) are based on surveys of consumers spending intentions and economic situations as well as their concerns and expectations for the immediate future
CS Hedge Fund Index The Credit Suisse Hedge Fund Index is compiled by Credit Suisse Hedge Index LLC It is an asset-weighted hedge fund index and includes only funds as opposed to separate accounts The index reflects performance net of all hedge fund component performance fees and expenses
CS LSI ex govt CHF The Liquid Swiss Index ex govt CHF is a market-capitalized bond index representing the most liquid and tradable portion of the Swiss bond market excluding Swiss government bonds The index is calculated by Credit Suisse
DAX The German Stock Index stock represents 30 of the largest and most liquid German companies that trade on the Frankfurt Exchange
DXY A measure of the value of the US dollar relative to the majority of its most important trading partners The US Dollar Index is similar to other trade-weighted indices which also use the exchange rates from the same major currencies
Eurostoxx 50 Eurostoxx 50 is a market-capitalization-weighted stock index of 50 leading blue-chip companies in the Eurozone
FTSE EPRANAREIT Global Real Estate Index Series The FTSE EPRANAREIT Global Real Estate Index Series is designed to represent general trends in eligible real estate equities worldwide
Hedge Fund Barometer The Hedge Fund Barometer is a proprietary Credit Suisse scoring tool that measures market conditions for hedge fund strategies It comprises four components liquidity volatility systemic risks and business cycle
Japan Topix TOPIX also known as the Tokyo Stock Price Index tracks all large Japanese companies listed in the stock exchanges first section The index calculation excludes temporary issues and preferred stocks
JPM EM hard curr USD The Emerging Market Bond Index Plus tracks the total return of hard-currency sovereign bonds across the most liquid emerging markets The index encompasses US-denominated Brady bonds (dollar-denominated bonds issued by Latin American countries) loans and Eurobonds
JPM EM local curr hedg USD The JPMorgan Government Bond Index tracks local currency bonds issued by emerging market governments across the most accessible markets for international investors
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 19
MSCI AC AsiaPacific The MSCI All Country Asia Pacific Index captures large and mid cap representation across 5 developed market countries and 8 emerging markets countries in the Asia Pacific region With 1000 constituents the index covers approximately 85 of the free float-adjusted market capitalization in each country
MSCI AC World The MSCI All Country World Index captures large and mid cap representation across 23 developed markets and 23 emerging market countries With roughly 2480 constituents the index covers around 85 of the global investable equity opportunity set
MSCI Emerging Markets MSCI Emerging Markets is a free-float-weighted Index designed to measure equity market performance in global emerging markets The index is developed and calculated by Morgan Stanley Capital International
MSCI EMU The MSCI EMU Index (European Economic and Monetary Union) captures large and mid cap representation across the 10 Developed Markets countries in the EMU With 237 constituents the index covers approximately 85 of the free float-adjusted market capitalization of the EMU
MSCI Europe The MSCI Europe Index captures large and mid cap representation across 15 developed markets countries in Europe With 442 constituents the index covers approximately 85 of the free float-adjusted market capitalization across the European developed markets equity universe
MSCI UK The MSCI United Kingdom Index is designed to measure the performance of the large and mid cap segments of the UK market With 111 constituents the index covers approximately 85 of the free float-adjusted market capitalization in the UK
MSCI World MSCI World is an index of global equity markets developed and calculated by Morgan Stanley Capital International Calculations are based on closing prices with dividends reinvested
OECD Composite Leading Indicators OECD Composite Leading Indicators (CLIs) are designed to provide early signals of turning points in business cycles with components that measure early stages of production respond to changes in economic activity and are sensitive to expectations of future activity
Purchasing Managers Indices Purchasing Managers Indices (PMIs) are economic indicators derived from monthly surveys of private-sector companies The two principal producers of PMIs are Markit Group which conducts PMIs for over 30 countries worldwide and the Institute for Supply Management (ISM) which conducts PMIs for the United States The indices include additional sub-indices for manufac-turing surveys such as new orders employment exports stocks of raw materials and finished goods prices of inputs and finished goods and services
Russell 1000 Growth Index The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe based on 1000 large-cap companies with higher price-to-book ratios and higher forecast growth values
Russell 1000 Index The Russell 1000 Index is a stock market index that represents the highest-ranking 1000 stocks in the Russell 3000 Index (encompassing the 3000 largest US-traded stocks with the underlying companies all incorporated in the USA) and representing about 90 of the total market capitalization of that index The Russell 1000 Index has a weighted average market capitalization of USD 81 billion and the median market capitalization is approximately USD 46 billion
Russell 1000 Value Index The Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe based on 1000 large-cap companies with lower price-to-book ratios and lower expected growth values
Switzerland SMI The Swiss Market Index is made up of 20 of the largest companies listed of the Swiss Performance Index universe It represents 85 of the free-float capitalization of the Swiss equity market As a price index the SMI is not adjusted for dividends
UK FTSE 100 FTSE 100 is a market-capitalization-weighted stock index that represents 100 of the most highly capitalized companies traded on the London Stock exchange The equities have an investibility weighting in the index calculation
US SampP 500 Standard and Poors 500 is a capitalization-weighted stock index representing all major industries in the USA which measures the performance of the domestic economy through changes in the aggregate market value
Abbreviations frequently used in reports
Abb Description Abb Description
3612 MMA 3612 month moving average IMF International Monetary Fund
AI Alternative investments LatAm Latin America
APAC Asia Pacific Libor London interbank offered rate
bbl barrel m bd Million barrels per day
BI Bank Indonesia M1 A measure of the money supply that includes all physical money such as coins and currency as well as demand deposits checking accounts and negotiable order of withdrawal accounts
BoC Bank of Canada M2 A measure of money supply that includes cash and checking deposits (M1) as well as savings deposits money market mutual funds and other time deposits
BoE Bank of England M3 A measure of money supply that includes M2 as well as large time deposits institutional money market funds short-term re-purchase agreements and other larger liquid assets
BoJ Bank of Japan MampA Mergers and acquisitions
bp Basis points MAS Monetary Authority of Singapore
BRIC Brazil Russia China India MLP Master Limited Partnership
CAGR Compound annual growth rate MoM Month-on-month
CBOE Chicago Board Options Exchange MPC Monetary Policy Committee
CFO Cash from operations OAS Option-adjusted spread
CFROI Cash flow return on investment OECD Organisation for Economic Co-operation and Development
DCF Discounted cash flow OIS Overnight indexed swap
DM Developed Market OPEC Organization of Petroleum Exporting Countries
DMs Developed Markets PB Price-to-book value
EBITDA Earnings before interest taxes depreciation and amortization PE Price-earnings ratio
ECB European Central Bank PBoC Peoples Bank of China
EEMEA Eastern Europe Middle East and Africa PEG PE ratio divided by growth in EPS
EM Emerging Market PMI Purchasing Managers Index
EMEA Europe Middle East and Africa PPP Purchasing power parity
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 20
EMs Emerging Markets QE Quantitative easing
EMU European Monetary Union QoQ Quarter-on-quarter
EPS Earnings per share rhs right-hand side (for charts)
ETF Exchange traded funds RBA Reserve Bank of Australia
EV Enterprise value RBI Reserve Bank of India
FCF Free cash flow RBNZ Reserve Bank of New Zealand
Fed US Federal Reserve REIT Real estate investment trust
FFO Funds from operations ROE Return on equity
FOMC Federal Open Market Committee ROIC Return on invested capital
FX Foreign exchange RRR Reserve requirement ratio
G10 Group of Ten SAA Strategic asset allocation
G3 Group of Three SDR Special drawing rights
GDP Gross domestic product SNB Swiss National Bank
GPIF Government Pension Investment Fund TAA Tactical asset allocation
HC Hard currency TWI Trade-Weighted Index
HY High yield VIX Volatility Index
IBD Interest-bearing debt WTI West Texas Intermediate
IC Credit Suisse Investment Committee YoY Year-on-year
IG Investment grade YTD Year-to-date
ILB Inflation-linked bond Personal Consumption An indicator of the average increase in prices for all domestic Expenditure (PCE defla- personal consumption tor)
Currency codes frequently used in reports
Code Currency Code Currency
ARS Argentine peso KRW South Korean won
AUD Australian dollar MXN Mexican peso
BRL Brazilian real MYR Malaysian ringgit
CAD Canadian dollar NOK Norwegian krone
CHF Swiss franc NZD New Zealand dollar
CLP Chilean peso PEN Peruvian nuevo sol
CNY Chinese yuan PHP Philippine peso
COP Colombian peso PLN Polish złoty
CZK Czech koruna RUB Russian ruble
EUR Euro SEK Swedish kronakronor
GBP Pound sterling SGD Singapore dollar
HKD Hong Kong dollar THB Thai baht
HUF Hungarian forint TRY Turkish lira
IDR Indonesian rupiah TWD New Taiwan dollar
ILS Israeli new shekel USD United States dollar
INR Indian rupee ZAR South African rand
JPY Japanese yen
Important information on derivatives
Pricing Option premiums and prices mentioned are indicative only Option premiums and prices can be subject to very rapid changes The prices and premiums mentioned are as of the time indicated in the text and might have changed substantially in the meantime
Risks Derivatives are complex instruments and are intended for sale only to investors who are capable of understanding and assuming all the risks involved Investors must be aware that adding option positions to an existing portfolio may change the characteristics and behavior of that portfolio substantially A portfoliorsquos sensitivity to certain market moves can be heavily impacted by the leverage effect of options
Buying calls Investors who buy call options risk the loss of the entire premium paid if the underlying security trades below the strike price at expiration
Buying puts Investors who buy put options risk loss of the entire premium paid if the underlying security finishes above the strike price at expiration
Selling calls Investors who sell calls commit themselves to sell the underlying for the strike price even if the market price of the underlying is substantially higher Investors who sell covered calls (own the underlying security and sell a call) risk limiting their upside to the strike price plus the upfront premium received and may have their security called away if the security price exceeds the strike price of the short call Additionally the investor has full downside participation that is only partially offset by the premium received upfront If investors are forced to sell the underlying they might be subject to taxing Investors shorting naked calls (ie selling calls but without holding the underlying security) risk unlimited losses of security price less strike price
Selling puts Put sellers commit to buying the underlying security at the strike price in the event the security falls below the strike price The maximum loss is the full strike price less the premium received for selling the put
Buying call spreads Investors who buy call spreads (buy a call and sell a call with a higher strike) risk the loss of the entire premium paid if the underlying trades below the lower strike price at expiration The maximum gain from buying call spreads is the difference between the strike prices less the upfront premium paid
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 21
Selling naked call spreads Selling naked call spreads (sell a call and buy a farther out-of-the-money call with no underlying security position) Investors risk a maximum loss of the difference between the long call strike and the short call strike less the upfront premium taken in if the underlying security finishes above the long call strike at expiration The maximum gain is the upfront premium taken in if the security finishes below the short call strike at expiration
Buying put spreads Investors who buy put spreads (buy a put and sell a put with a lower strike price) also have a maximum loss of the upfront premium paid The maximum gain from buying put spreads is the difference between the strike prices less the upfront premium paid
Buying strangles Buying strangles (buy put and buy call) The maximum loss is the entire premium paid for both options if the underlying trades between the put strike and the call strike at expiration
Selling strangles or straddles Investors who are long a security and short a strangle or straddle risk capping their upside in the security to the strike price of the call that is sold plus the upfront premium received Additionally if the security trades below the strike price of the short put investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short put and will also experience losses in the security position if they owns shares The maximum potential loss is the full value of the strike price (less the value of the premium received) plus losses on the long security position Investors who are short naked strangles or straddles have unlimited potential loss since if the security trades above the call strike price investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short call In addition they are obligated to buy the security at the put strike price (less upfront premium received) if the security fin-ishes below the put strike price at expiration
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 22
Important information on mutual funds Fees and charges etc Different types of fees and commissions (subscription fee amount which must be retained in trust assets repurchase fee etc) are charged when investment trustsfunds are purchased and sold In addition apart from these fees and commissions trust and management fees and other fees (audit fee trust administrative charges carried interest etc) are charged and borne by you through your trust asset Fees and commissions borne by you will be a sum of these amounts Such fees and commissions vary depending on the investment trustfund and depending on the investment status and therefore we cannot provide specific amounts or calculation methods
For detailed information on fees and commissions etc of each re-spective investment trustfund please refer to the pre-contract documents (prospectus and other supplementary documents)
Important information on dividends bull Dividends are different to interest on deposits and are paid from the net asset value of investment trustsfunds Therefore when dividends are paid the base value (net asset value per unit) will decrease by an amount equivalent to the amount paid
bull Dividends may be paid exceeding the profit earned during the calculation period (trading profit including profits of dividends etc after expenses) In this case the base value (net asset value per unit) on the settlement date in this period will decrease compared to that on the settlement date in the previous period Also the level of dividends does not always reflect the rate of return for the investment trustfund during the calculation period
bull A part or all of dividends may be virtually equivalent to some repayment of the principal depending on the purchase price of the investment trustfund by an investor The same can be applied to a case that an increase in the base value (net asset value per unit) is smaller than a dividend amount due to the investment status after purchase of the investment trustfund
Please refer to the prospectus for details
Explanation of major risks (description pursuant to Ar-ticle 37 (Regulation on Advertising etc) of the Financial Instruments and Exchange Act etc) The risks described below are a summary of some general risks of investment trustsfunds (risks which have an impact on net asset value) and do not cover all risks Please refer to the pre-trade documents (prospectus and other supplementary documents)
Price volatility risk Investment trustsfunds invest mainly in equities bonds and derivative products etc The value of the investment trustfund will go up or down due to increases or decreases in the prices of such investments Further the value of such investments will be impacted by political and economic factors the financial standing of an issuer market demand and supply interest rates and other factors
Foreign currency risk Investment trustsfunds which invest in equities or bonds etc denominated in foreign currencies entail a foreign currency risk and the base value (or net asset value) of investment trustsfunds may change depending on the currency exchange rate Even when you do not experience a loss of invest-ment principal when calculated in the base currency you may suffer a loss at conversion into Japanese yen due to fluctuations in exchange rates Fur-thermore investment trustsfunds which utilize currency trading among multiple currencies may incur costs due to such currency trading depending on the difference in short-term interest rates between the currencies and you may suffer a loss
Credit risk For investment trustsfunds which invest in equities or bonds etc the prices of these investments may increase and decrease due to changes in the business or financial standing of the issuer and other factors and you may suffer a loss
Risk pertaining to liquidity Where there is sudden high volume in a particular investment or when sudden changes in the external environment surrounding markets triggers a sudden downturn in a market or period of market turmoil etc investments may not be flexibly traded In such a case a decline in the price of the investment may impact the base value (or net asset value) of the investment trust result-ing in a loss Further the management company may decide to stop calcu-lation of net asset prices or suspend sell or redemption claims
In addition for certain types of investment trustfund there is a risk that particular investments may be designated to a separate account (or side pocket) due to a lack of liquidity When a separate account is utilized by in-vestment trustsfunds restrictions may apply as to when such investments can be liquidated through a sell or redemption claim and there may be a re-striction in the timing or form of redemption claim permissible In particular for Fund of Fund investments when an investment trustfund makes an in-vestment without time limit in another fund the investment trustfund may be influenced by investment results in the other funds
Risk associated with an outflow of money received from sales orders When there is a large volume of sale orders in a short period of time the investment trustfund may be forced to sell structured securities at a lower rate than the prevailing market price to refund monies to investors and as a result you may suffer a loss Also alternative investment trustsfunds gen-erally have a limitation in selling or cashing out the investment compared to traditional investment trustsfunds Many alternative investment trustsfunds only accept a sell or redemption order on a monthly or quarterly basis and therefore you may not be able to rapidly exit the investment in for example times of economic uncertainty
Redemption risk Investment trustsfunds may become subject to mandatory redemption due to a certain reason For details please refer to the pre-trade documents (prospectus and other supplementary documents) before subscription
Concentration risk Investment trustsfunds which invest in a certain investment product or similar investment product group may significantly decrease in value (net asset value) under severe market circumstances
Country risk When changes in political economic and social conditions in investment destination countries and regions cause a dislocation in financial and security markets security prices may significantly change Also investments in emerging markets involve unique risks including small market size and trade volume political and social uncertainties undeveloped market infrastructure such as a clearing system undeveloped information disclosure system and legal system by supervising authorities large fluctuations in exchange rates restrictions on currency remittance to foreign countries and other factors and therefore may have larger price fluctuations compared to investments in major developed markets
Important information on non-Japanese stocks Please refer to the issuer information when you purchase non-Japanese stocks
Disclaimer This material is published solely for information purposes and is intended for the recipientrsquos sole use Credit Suisse does not represent or warrant its ac-curacy or completeness The material is not directly or indirectly intended for any investment solicitation and does not constitute an invitation or offer to conclude a transaction contract for financial instruments etc Credit Suisse accepts no liability for loss arising from the use of the information in this material It is recommended that you consult with the third party professional advisors as to legal or tax issues etc This material should not be reproduced or quoted without the prior express written consent of Credit Suisse The information and opinions expressed in this material were produced by Private Banking Division at Credit Suisse as of the date of writing and are subject to change without notice Views expressed in respect of particular investment products in this material may be different from or inconsistent with the ob-
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 23
servations and views of other divisions besides Private Banking due to the differences in evaluation criteria This material is solely distributed in Japan by Credit Suisse Securities (Japan) Limited Credit Suisse Securities (Japan) Limited will not distribute or forward it outside Japan
You may incur a loss as a result of fluctuations in stock prices if you invest in stocks In relation to foreign stocks you may incur a loss in such stocks due to foreign exchange rate fluctuations etc The market value of bonds is affected by interest rate fluctuations or changes in the financial standing of any issuer etc as such you may incur a loss if you sell such bonds before they are redeemed In relation to foreign bonds you may incur a loss in such bonds due to foreign exchange rate fluctuations etc The net asset value of mutual funds can fall as well as rise due to price changes of underlying stocks bonds etc and foreign exchange rate fluctuations and this may cause you to incur a loss
Structured securities and derivatives are complex instruments 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 of any structured security or transaction may be affected by changes in financial market conditions reference indices volatility and the credit quality of any issuer or reference issuer
Furthermore there are structured securities on which you may incur a loss since the redemption amounts are linked with fluctuations in reference indices etc There are also derivatives on which potential losses may exceed the amount of the initial investment Commission rates for any transactions will be as per the rates agreed between Credit Suisse and you For transactions conducted on a principal to principal basis between Credit Suisse and you the purchase or sale price will be the total consideration Transactions con-
ducted on a principal to principal basis including over the counter derivatives transactions will be quoted as a purchasebid price or selloffer price and for which a difference or spread may exist Charges in relation to transactions will be agreed prior to dealing as per our requirements under the Financial Instruments and Exchange Law
By purchasing financial instruments etc you may incur a loss or a loss in excess of the principal as a result of fluctuations in market prices or other financial indices etc Please read carefully the Pre-Contract Documentation provided for an explanation of associated risks and commissions etc of individual financial instruments etc prior to purchase Please contact your Relationship Manager if you have any questions
UNITED STATES NEITHER THIS REPORT NOR ANY COPY THEREOF MAY BE SENT TAKEN INTO OR DISTRIBUTED IN THE UNITED STATES OR TO ANY US PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE US SECURITIES ACT OF 1933 AS AMENDED)
Credit Suisse Securities (Japan) Limited Financial Instruments Dealer Di-rector-General of Kanto Local Finance Bureau (Kinsho) No 66 a member of Japan Securities Dealers Association Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association
Copyright copy 2021 Credit Suisse Group AG andor its affiliates All rights reserved
21C013A_IS_J
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 24
Imprint
Publisher Credit Suisse Private Banking amp Wealth Management Investment Solutions amp Products
Information about other Investment Solutions amp Products publications Internet httpsinvestmentcredit-suissecom
Intranet (for employees only) httpsisrcsintranet
Subscription (clients) Please contact your customer advisor to subscribe to this publication
Subscription (internal) For information on subscriptions please visit httpisrcsintranetsubscriptions
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 25
Glossary
Risk warnings
Emerging markets Emerging markets are located in countries that possess one or more of the following characteristics a certain degree of political instability relatively unpredictable financial markets and economic growth patterns a financial market that is still at the development stage or a weak economy Emerging market investments usually result in higher risks as a result of political economic credit exchange rate market liquidity legal settlement market shareholder and creditor risks
Hedge funds Regardless of structure hedge funds are not limited to any particular investment discipline or trading strategy and seek to profit in all kinds of markets by using leverage derivative instruments and speculative investment strategies that may increase the risk of investment loss
Commodity investments Commodity transactions carry a high degree of risk and may not be suitable for many private investors The extent of loss due to market movements can be substantial or even result in a total loss
Real estate Investors in real estate are exposed to liquidity foreign currency and other risks including cyclical risk rental and local market risk as well as environmental risk and changes to the legal situation
Currency risks Investments in foreign currencies involve the additional risk that the foreign currency might lose value against the investorrsquos reference currency
Equity risk Equities are subject to market forces and hence fluctuations in value which are not entirely predictable
Market risk Financial markets rise and fall based on economic conditions inflationary pressures world news and business-specific reports While trends may be detected over time it can be difficult to predict the direction of the market and individual stocks This variability puts stock investments at risk of losing value
High Yield bond risk High Yield Bonds are typically rated below investment grade or are unrated and as such are often subject to a higher risk of issuer default
Perpetual Bond risk Perpetual Bonds have no maturity date and therefore the Interest pay-out depends on the viability of the issuer in the very long term
Subordinated Bond risk In case of liquidation of the issuer investors can only get back the principal after other senior creditors are paid
Risk of Bonds with variable deferral of interest terms Investors would face uncertainty over the amount and time of the interest payments to be received
Callable bond risk Investors face reinvestment risk when the issuer exercises its right to redeem the bond before it matures
Risk of Bonds with extendable maturity date Investors would not have a definite schedule of principal repayment
Convertible or exchangeable bond risk Investors are subject to both equity and bond investment risk
Cocos risk The bond may be written-off fully or partially or converted to common stock on the occurrence of a trigger event
Explanation of indices frequently used in reports
Index Comment
Australia SampPASX 200 SampPASX 200 is an Australian market-capitalization-weighted and float-adjusted stock index calculated by Standard and Poors
BC High Yield Corp USD The US Corporate High Yield Index measures USD-denominated non-investment grade fixed-rate and taxable corporate bonds The index is calculated by Barclays
BC High Yield Pan EUR The Euro Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate EUR The US Corporate Index tracks the fixed-rate investment-grade euro-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
BC IG Corporate USD The IG Corporate Index tracks the fixed-rate investment-grade dollar-denominated corporate bond market The index includes both US and non-US issues that meet specified maturity liquidity and quality requirements The index is calculated by Barclays
Canada SampPTSX comp The SampPTSX composite index is the Canadian equivalent of the SampP 500 Index in the USA The index contains the largest stocks traded on the Toronto Stock Exchange
Consumer Confidence Indices Consumer Confidence Indices (CCIs) are based on surveys of consumers spending intentions and economic situations as well as their concerns and expectations for the immediate future
CS Hedge Fund Index The Credit Suisse Hedge Fund Index is compiled by Credit Suisse Hedge Index LLC It is an asset-weighted hedge fund index and includes only funds as opposed to separate accounts The index reflects performance net of all hedge fund component performance fees and expenses
CS LSI ex govt CHF The Liquid Swiss Index ex govt CHF is a market-capitalized bond index representing the most liquid and tradable portion of the Swiss bond market excluding Swiss government bonds The index is calculated by Credit Suisse
DAX The German Stock Index stock represents 30 of the largest and most liquid German companies that trade on the Frankfurt Exchange
DXY A measure of the value of the US dollar relative to the majority of its most important trading partners The US Dollar Index is similar to other trade-weighted indices which also use the exchange rates from the same major currencies
Eurostoxx 50 Eurostoxx 50 is a market-capitalization-weighted stock index of 50 leading blue-chip companies in the Eurozone
FTSE EPRANAREIT Global Real Estate Index Series The FTSE EPRANAREIT Global Real Estate Index Series is designed to represent general trends in eligible real estate equities worldwide
Hedge Fund Barometer The Hedge Fund Barometer is a proprietary Credit Suisse scoring tool that measures market conditions for hedge fund strategies It comprises four components liquidity volatility systemic risks and business cycle
Japan Topix TOPIX also known as the Tokyo Stock Price Index tracks all large Japanese companies listed in the stock exchanges first section The index calculation excludes temporary issues and preferred stocks
JPM EM hard curr USD The Emerging Market Bond Index Plus tracks the total return of hard-currency sovereign bonds across the most liquid emerging markets The index encompasses US-denominated Brady bonds (dollar-denominated bonds issued by Latin American countries) loans and Eurobonds
JPM EM local curr hedg USD The JPMorgan Government Bond Index tracks local currency bonds issued by emerging market governments across the most accessible markets for international investors
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 19
MSCI AC AsiaPacific The MSCI All Country Asia Pacific Index captures large and mid cap representation across 5 developed market countries and 8 emerging markets countries in the Asia Pacific region With 1000 constituents the index covers approximately 85 of the free float-adjusted market capitalization in each country
MSCI AC World The MSCI All Country World Index captures large and mid cap representation across 23 developed markets and 23 emerging market countries With roughly 2480 constituents the index covers around 85 of the global investable equity opportunity set
MSCI Emerging Markets MSCI Emerging Markets is a free-float-weighted Index designed to measure equity market performance in global emerging markets The index is developed and calculated by Morgan Stanley Capital International
MSCI EMU The MSCI EMU Index (European Economic and Monetary Union) captures large and mid cap representation across the 10 Developed Markets countries in the EMU With 237 constituents the index covers approximately 85 of the free float-adjusted market capitalization of the EMU
MSCI Europe The MSCI Europe Index captures large and mid cap representation across 15 developed markets countries in Europe With 442 constituents the index covers approximately 85 of the free float-adjusted market capitalization across the European developed markets equity universe
MSCI UK The MSCI United Kingdom Index is designed to measure the performance of the large and mid cap segments of the UK market With 111 constituents the index covers approximately 85 of the free float-adjusted market capitalization in the UK
MSCI World MSCI World is an index of global equity markets developed and calculated by Morgan Stanley Capital International Calculations are based on closing prices with dividends reinvested
OECD Composite Leading Indicators OECD Composite Leading Indicators (CLIs) are designed to provide early signals of turning points in business cycles with components that measure early stages of production respond to changes in economic activity and are sensitive to expectations of future activity
Purchasing Managers Indices Purchasing Managers Indices (PMIs) are economic indicators derived from monthly surveys of private-sector companies The two principal producers of PMIs are Markit Group which conducts PMIs for over 30 countries worldwide and the Institute for Supply Management (ISM) which conducts PMIs for the United States The indices include additional sub-indices for manufac-turing surveys such as new orders employment exports stocks of raw materials and finished goods prices of inputs and finished goods and services
Russell 1000 Growth Index The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe based on 1000 large-cap companies with higher price-to-book ratios and higher forecast growth values
Russell 1000 Index The Russell 1000 Index is a stock market index that represents the highest-ranking 1000 stocks in the Russell 3000 Index (encompassing the 3000 largest US-traded stocks with the underlying companies all incorporated in the USA) and representing about 90 of the total market capitalization of that index The Russell 1000 Index has a weighted average market capitalization of USD 81 billion and the median market capitalization is approximately USD 46 billion
Russell 1000 Value Index The Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe based on 1000 large-cap companies with lower price-to-book ratios and lower expected growth values
Switzerland SMI The Swiss Market Index is made up of 20 of the largest companies listed of the Swiss Performance Index universe It represents 85 of the free-float capitalization of the Swiss equity market As a price index the SMI is not adjusted for dividends
UK FTSE 100 FTSE 100 is a market-capitalization-weighted stock index that represents 100 of the most highly capitalized companies traded on the London Stock exchange The equities have an investibility weighting in the index calculation
US SampP 500 Standard and Poors 500 is a capitalization-weighted stock index representing all major industries in the USA which measures the performance of the domestic economy through changes in the aggregate market value
Abbreviations frequently used in reports
Abb Description Abb Description
3612 MMA 3612 month moving average IMF International Monetary Fund
AI Alternative investments LatAm Latin America
APAC Asia Pacific Libor London interbank offered rate
bbl barrel m bd Million barrels per day
BI Bank Indonesia M1 A measure of the money supply that includes all physical money such as coins and currency as well as demand deposits checking accounts and negotiable order of withdrawal accounts
BoC Bank of Canada M2 A measure of money supply that includes cash and checking deposits (M1) as well as savings deposits money market mutual funds and other time deposits
BoE Bank of England M3 A measure of money supply that includes M2 as well as large time deposits institutional money market funds short-term re-purchase agreements and other larger liquid assets
BoJ Bank of Japan MampA Mergers and acquisitions
bp Basis points MAS Monetary Authority of Singapore
BRIC Brazil Russia China India MLP Master Limited Partnership
CAGR Compound annual growth rate MoM Month-on-month
CBOE Chicago Board Options Exchange MPC Monetary Policy Committee
CFO Cash from operations OAS Option-adjusted spread
CFROI Cash flow return on investment OECD Organisation for Economic Co-operation and Development
DCF Discounted cash flow OIS Overnight indexed swap
DM Developed Market OPEC Organization of Petroleum Exporting Countries
DMs Developed Markets PB Price-to-book value
EBITDA Earnings before interest taxes depreciation and amortization PE Price-earnings ratio
ECB European Central Bank PBoC Peoples Bank of China
EEMEA Eastern Europe Middle East and Africa PEG PE ratio divided by growth in EPS
EM Emerging Market PMI Purchasing Managers Index
EMEA Europe Middle East and Africa PPP Purchasing power parity
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 20
EMs Emerging Markets QE Quantitative easing
EMU European Monetary Union QoQ Quarter-on-quarter
EPS Earnings per share rhs right-hand side (for charts)
ETF Exchange traded funds RBA Reserve Bank of Australia
EV Enterprise value RBI Reserve Bank of India
FCF Free cash flow RBNZ Reserve Bank of New Zealand
Fed US Federal Reserve REIT Real estate investment trust
FFO Funds from operations ROE Return on equity
FOMC Federal Open Market Committee ROIC Return on invested capital
FX Foreign exchange RRR Reserve requirement ratio
G10 Group of Ten SAA Strategic asset allocation
G3 Group of Three SDR Special drawing rights
GDP Gross domestic product SNB Swiss National Bank
GPIF Government Pension Investment Fund TAA Tactical asset allocation
HC Hard currency TWI Trade-Weighted Index
HY High yield VIX Volatility Index
IBD Interest-bearing debt WTI West Texas Intermediate
IC Credit Suisse Investment Committee YoY Year-on-year
IG Investment grade YTD Year-to-date
ILB Inflation-linked bond Personal Consumption An indicator of the average increase in prices for all domestic Expenditure (PCE defla- personal consumption tor)
Currency codes frequently used in reports
Code Currency Code Currency
ARS Argentine peso KRW South Korean won
AUD Australian dollar MXN Mexican peso
BRL Brazilian real MYR Malaysian ringgit
CAD Canadian dollar NOK Norwegian krone
CHF Swiss franc NZD New Zealand dollar
CLP Chilean peso PEN Peruvian nuevo sol
CNY Chinese yuan PHP Philippine peso
COP Colombian peso PLN Polish złoty
CZK Czech koruna RUB Russian ruble
EUR Euro SEK Swedish kronakronor
GBP Pound sterling SGD Singapore dollar
HKD Hong Kong dollar THB Thai baht
HUF Hungarian forint TRY Turkish lira
IDR Indonesian rupiah TWD New Taiwan dollar
ILS Israeli new shekel USD United States dollar
INR Indian rupee ZAR South African rand
JPY Japanese yen
Important information on derivatives
Pricing Option premiums and prices mentioned are indicative only Option premiums and prices can be subject to very rapid changes The prices and premiums mentioned are as of the time indicated in the text and might have changed substantially in the meantime
Risks Derivatives are complex instruments and are intended for sale only to investors who are capable of understanding and assuming all the risks involved Investors must be aware that adding option positions to an existing portfolio may change the characteristics and behavior of that portfolio substantially A portfoliorsquos sensitivity to certain market moves can be heavily impacted by the leverage effect of options
Buying calls Investors who buy call options risk the loss of the entire premium paid if the underlying security trades below the strike price at expiration
Buying puts Investors who buy put options risk loss of the entire premium paid if the underlying security finishes above the strike price at expiration
Selling calls Investors who sell calls commit themselves to sell the underlying for the strike price even if the market price of the underlying is substantially higher Investors who sell covered calls (own the underlying security and sell a call) risk limiting their upside to the strike price plus the upfront premium received and may have their security called away if the security price exceeds the strike price of the short call Additionally the investor has full downside participation that is only partially offset by the premium received upfront If investors are forced to sell the underlying they might be subject to taxing Investors shorting naked calls (ie selling calls but without holding the underlying security) risk unlimited losses of security price less strike price
Selling puts Put sellers commit to buying the underlying security at the strike price in the event the security falls below the strike price The maximum loss is the full strike price less the premium received for selling the put
Buying call spreads Investors who buy call spreads (buy a call and sell a call with a higher strike) risk the loss of the entire premium paid if the underlying trades below the lower strike price at expiration The maximum gain from buying call spreads is the difference between the strike prices less the upfront premium paid
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 21
Selling naked call spreads Selling naked call spreads (sell a call and buy a farther out-of-the-money call with no underlying security position) Investors risk a maximum loss of the difference between the long call strike and the short call strike less the upfront premium taken in if the underlying security finishes above the long call strike at expiration The maximum gain is the upfront premium taken in if the security finishes below the short call strike at expiration
Buying put spreads Investors who buy put spreads (buy a put and sell a put with a lower strike price) also have a maximum loss of the upfront premium paid The maximum gain from buying put spreads is the difference between the strike prices less the upfront premium paid
Buying strangles Buying strangles (buy put and buy call) The maximum loss is the entire premium paid for both options if the underlying trades between the put strike and the call strike at expiration
Selling strangles or straddles Investors who are long a security and short a strangle or straddle risk capping their upside in the security to the strike price of the call that is sold plus the upfront premium received Additionally if the security trades below the strike price of the short put investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short put and will also experience losses in the security position if they owns shares The maximum potential loss is the full value of the strike price (less the value of the premium received) plus losses on the long security position Investors who are short naked strangles or straddles have unlimited potential loss since if the security trades above the call strike price investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short call In addition they are obligated to buy the security at the put strike price (less upfront premium received) if the security fin-ishes below the put strike price at expiration
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 22
Important information on mutual funds Fees and charges etc Different types of fees and commissions (subscription fee amount which must be retained in trust assets repurchase fee etc) are charged when investment trustsfunds are purchased and sold In addition apart from these fees and commissions trust and management fees and other fees (audit fee trust administrative charges carried interest etc) are charged and borne by you through your trust asset Fees and commissions borne by you will be a sum of these amounts Such fees and commissions vary depending on the investment trustfund and depending on the investment status and therefore we cannot provide specific amounts or calculation methods
For detailed information on fees and commissions etc of each re-spective investment trustfund please refer to the pre-contract documents (prospectus and other supplementary documents)
Important information on dividends bull Dividends are different to interest on deposits and are paid from the net asset value of investment trustsfunds Therefore when dividends are paid the base value (net asset value per unit) will decrease by an amount equivalent to the amount paid
bull Dividends may be paid exceeding the profit earned during the calculation period (trading profit including profits of dividends etc after expenses) In this case the base value (net asset value per unit) on the settlement date in this period will decrease compared to that on the settlement date in the previous period Also the level of dividends does not always reflect the rate of return for the investment trustfund during the calculation period
bull A part or all of dividends may be virtually equivalent to some repayment of the principal depending on the purchase price of the investment trustfund by an investor The same can be applied to a case that an increase in the base value (net asset value per unit) is smaller than a dividend amount due to the investment status after purchase of the investment trustfund
Please refer to the prospectus for details
Explanation of major risks (description pursuant to Ar-ticle 37 (Regulation on Advertising etc) of the Financial Instruments and Exchange Act etc) The risks described below are a summary of some general risks of investment trustsfunds (risks which have an impact on net asset value) and do not cover all risks Please refer to the pre-trade documents (prospectus and other supplementary documents)
Price volatility risk Investment trustsfunds invest mainly in equities bonds and derivative products etc The value of the investment trustfund will go up or down due to increases or decreases in the prices of such investments Further the value of such investments will be impacted by political and economic factors the financial standing of an issuer market demand and supply interest rates and other factors
Foreign currency risk Investment trustsfunds which invest in equities or bonds etc denominated in foreign currencies entail a foreign currency risk and the base value (or net asset value) of investment trustsfunds may change depending on the currency exchange rate Even when you do not experience a loss of invest-ment principal when calculated in the base currency you may suffer a loss at conversion into Japanese yen due to fluctuations in exchange rates Fur-thermore investment trustsfunds which utilize currency trading among multiple currencies may incur costs due to such currency trading depending on the difference in short-term interest rates between the currencies and you may suffer a loss
Credit risk For investment trustsfunds which invest in equities or bonds etc the prices of these investments may increase and decrease due to changes in the business or financial standing of the issuer and other factors and you may suffer a loss
Risk pertaining to liquidity Where there is sudden high volume in a particular investment or when sudden changes in the external environment surrounding markets triggers a sudden downturn in a market or period of market turmoil etc investments may not be flexibly traded In such a case a decline in the price of the investment may impact the base value (or net asset value) of the investment trust result-ing in a loss Further the management company may decide to stop calcu-lation of net asset prices or suspend sell or redemption claims
In addition for certain types of investment trustfund there is a risk that particular investments may be designated to a separate account (or side pocket) due to a lack of liquidity When a separate account is utilized by in-vestment trustsfunds restrictions may apply as to when such investments can be liquidated through a sell or redemption claim and there may be a re-striction in the timing or form of redemption claim permissible In particular for Fund of Fund investments when an investment trustfund makes an in-vestment without time limit in another fund the investment trustfund may be influenced by investment results in the other funds
Risk associated with an outflow of money received from sales orders When there is a large volume of sale orders in a short period of time the investment trustfund may be forced to sell structured securities at a lower rate than the prevailing market price to refund monies to investors and as a result you may suffer a loss Also alternative investment trustsfunds gen-erally have a limitation in selling or cashing out the investment compared to traditional investment trustsfunds Many alternative investment trustsfunds only accept a sell or redemption order on a monthly or quarterly basis and therefore you may not be able to rapidly exit the investment in for example times of economic uncertainty
Redemption risk Investment trustsfunds may become subject to mandatory redemption due to a certain reason For details please refer to the pre-trade documents (prospectus and other supplementary documents) before subscription
Concentration risk Investment trustsfunds which invest in a certain investment product or similar investment product group may significantly decrease in value (net asset value) under severe market circumstances
Country risk When changes in political economic and social conditions in investment destination countries and regions cause a dislocation in financial and security markets security prices may significantly change Also investments in emerging markets involve unique risks including small market size and trade volume political and social uncertainties undeveloped market infrastructure such as a clearing system undeveloped information disclosure system and legal system by supervising authorities large fluctuations in exchange rates restrictions on currency remittance to foreign countries and other factors and therefore may have larger price fluctuations compared to investments in major developed markets
Important information on non-Japanese stocks Please refer to the issuer information when you purchase non-Japanese stocks
Disclaimer This material is published solely for information purposes and is intended for the recipientrsquos sole use Credit Suisse does not represent or warrant its ac-curacy or completeness The material is not directly or indirectly intended for any investment solicitation and does not constitute an invitation or offer to conclude a transaction contract for financial instruments etc Credit Suisse accepts no liability for loss arising from the use of the information in this material It is recommended that you consult with the third party professional advisors as to legal or tax issues etc This material should not be reproduced or quoted without the prior express written consent of Credit Suisse The information and opinions expressed in this material were produced by Private Banking Division at Credit Suisse as of the date of writing and are subject to change without notice Views expressed in respect of particular investment products in this material may be different from or inconsistent with the ob-
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 23
servations and views of other divisions besides Private Banking due to the differences in evaluation criteria This material is solely distributed in Japan by Credit Suisse Securities (Japan) Limited Credit Suisse Securities (Japan) Limited will not distribute or forward it outside Japan
You may incur a loss as a result of fluctuations in stock prices if you invest in stocks In relation to foreign stocks you may incur a loss in such stocks due to foreign exchange rate fluctuations etc The market value of bonds is affected by interest rate fluctuations or changes in the financial standing of any issuer etc as such you may incur a loss if you sell such bonds before they are redeemed In relation to foreign bonds you may incur a loss in such bonds due to foreign exchange rate fluctuations etc The net asset value of mutual funds can fall as well as rise due to price changes of underlying stocks bonds etc and foreign exchange rate fluctuations and this may cause you to incur a loss
Structured securities and derivatives are complex instruments 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 of any structured security or transaction may be affected by changes in financial market conditions reference indices volatility and the credit quality of any issuer or reference issuer
Furthermore there are structured securities on which you may incur a loss since the redemption amounts are linked with fluctuations in reference indices etc There are also derivatives on which potential losses may exceed the amount of the initial investment Commission rates for any transactions will be as per the rates agreed between Credit Suisse and you For transactions conducted on a principal to principal basis between Credit Suisse and you the purchase or sale price will be the total consideration Transactions con-
ducted on a principal to principal basis including over the counter derivatives transactions will be quoted as a purchasebid price or selloffer price and for which a difference or spread may exist Charges in relation to transactions will be agreed prior to dealing as per our requirements under the Financial Instruments and Exchange Law
By purchasing financial instruments etc you may incur a loss or a loss in excess of the principal as a result of fluctuations in market prices or other financial indices etc Please read carefully the Pre-Contract Documentation provided for an explanation of associated risks and commissions etc of individual financial instruments etc prior to purchase Please contact your Relationship Manager if you have any questions
UNITED STATES NEITHER THIS REPORT NOR ANY COPY THEREOF MAY BE SENT TAKEN INTO OR DISTRIBUTED IN THE UNITED STATES OR TO ANY US PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE US SECURITIES ACT OF 1933 AS AMENDED)
Credit Suisse Securities (Japan) Limited Financial Instruments Dealer Di-rector-General of Kanto Local Finance Bureau (Kinsho) No 66 a member of Japan Securities Dealers Association Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association
Copyright copy 2021 Credit Suisse Group AG andor its affiliates All rights reserved
21C013A_IS_J
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 24
Imprint
Publisher Credit Suisse Private Banking amp Wealth Management Investment Solutions amp Products
Information about other Investment Solutions amp Products publications Internet httpsinvestmentcredit-suissecom
Intranet (for employees only) httpsisrcsintranet
Subscription (clients) Please contact your customer advisor to subscribe to this publication
Subscription (internal) For information on subscriptions please visit httpisrcsintranetsubscriptions
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 25
MSCI AC AsiaPacific The MSCI All Country Asia Pacific Index captures large and mid cap representation across 5 developed market countries and 8 emerging markets countries in the Asia Pacific region With 1000 constituents the index covers approximately 85 of the free float-adjusted market capitalization in each country
MSCI AC World The MSCI All Country World Index captures large and mid cap representation across 23 developed markets and 23 emerging market countries With roughly 2480 constituents the index covers around 85 of the global investable equity opportunity set
MSCI Emerging Markets MSCI Emerging Markets is a free-float-weighted Index designed to measure equity market performance in global emerging markets The index is developed and calculated by Morgan Stanley Capital International
MSCI EMU The MSCI EMU Index (European Economic and Monetary Union) captures large and mid cap representation across the 10 Developed Markets countries in the EMU With 237 constituents the index covers approximately 85 of the free float-adjusted market capitalization of the EMU
MSCI Europe The MSCI Europe Index captures large and mid cap representation across 15 developed markets countries in Europe With 442 constituents the index covers approximately 85 of the free float-adjusted market capitalization across the European developed markets equity universe
MSCI UK The MSCI United Kingdom Index is designed to measure the performance of the large and mid cap segments of the UK market With 111 constituents the index covers approximately 85 of the free float-adjusted market capitalization in the UK
MSCI World MSCI World is an index of global equity markets developed and calculated by Morgan Stanley Capital International Calculations are based on closing prices with dividends reinvested
OECD Composite Leading Indicators OECD Composite Leading Indicators (CLIs) are designed to provide early signals of turning points in business cycles with components that measure early stages of production respond to changes in economic activity and are sensitive to expectations of future activity
Purchasing Managers Indices Purchasing Managers Indices (PMIs) are economic indicators derived from monthly surveys of private-sector companies The two principal producers of PMIs are Markit Group which conducts PMIs for over 30 countries worldwide and the Institute for Supply Management (ISM) which conducts PMIs for the United States The indices include additional sub-indices for manufac-turing surveys such as new orders employment exports stocks of raw materials and finished goods prices of inputs and finished goods and services
Russell 1000 Growth Index The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe based on 1000 large-cap companies with higher price-to-book ratios and higher forecast growth values
Russell 1000 Index The Russell 1000 Index is a stock market index that represents the highest-ranking 1000 stocks in the Russell 3000 Index (encompassing the 3000 largest US-traded stocks with the underlying companies all incorporated in the USA) and representing about 90 of the total market capitalization of that index The Russell 1000 Index has a weighted average market capitalization of USD 81 billion and the median market capitalization is approximately USD 46 billion
Russell 1000 Value Index The Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe based on 1000 large-cap companies with lower price-to-book ratios and lower expected growth values
Switzerland SMI The Swiss Market Index is made up of 20 of the largest companies listed of the Swiss Performance Index universe It represents 85 of the free-float capitalization of the Swiss equity market As a price index the SMI is not adjusted for dividends
UK FTSE 100 FTSE 100 is a market-capitalization-weighted stock index that represents 100 of the most highly capitalized companies traded on the London Stock exchange The equities have an investibility weighting in the index calculation
US SampP 500 Standard and Poors 500 is a capitalization-weighted stock index representing all major industries in the USA which measures the performance of the domestic economy through changes in the aggregate market value
Abbreviations frequently used in reports
Abb Description Abb Description
3612 MMA 3612 month moving average IMF International Monetary Fund
AI Alternative investments LatAm Latin America
APAC Asia Pacific Libor London interbank offered rate
bbl barrel m bd Million barrels per day
BI Bank Indonesia M1 A measure of the money supply that includes all physical money such as coins and currency as well as demand deposits checking accounts and negotiable order of withdrawal accounts
BoC Bank of Canada M2 A measure of money supply that includes cash and checking deposits (M1) as well as savings deposits money market mutual funds and other time deposits
BoE Bank of England M3 A measure of money supply that includes M2 as well as large time deposits institutional money market funds short-term re-purchase agreements and other larger liquid assets
BoJ Bank of Japan MampA Mergers and acquisitions
bp Basis points MAS Monetary Authority of Singapore
BRIC Brazil Russia China India MLP Master Limited Partnership
CAGR Compound annual growth rate MoM Month-on-month
CBOE Chicago Board Options Exchange MPC Monetary Policy Committee
CFO Cash from operations OAS Option-adjusted spread
CFROI Cash flow return on investment OECD Organisation for Economic Co-operation and Development
DCF Discounted cash flow OIS Overnight indexed swap
DM Developed Market OPEC Organization of Petroleum Exporting Countries
DMs Developed Markets PB Price-to-book value
EBITDA Earnings before interest taxes depreciation and amortization PE Price-earnings ratio
ECB European Central Bank PBoC Peoples Bank of China
EEMEA Eastern Europe Middle East and Africa PEG PE ratio divided by growth in EPS
EM Emerging Market PMI Purchasing Managers Index
EMEA Europe Middle East and Africa PPP Purchasing power parity
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 20
EMs Emerging Markets QE Quantitative easing
EMU European Monetary Union QoQ Quarter-on-quarter
EPS Earnings per share rhs right-hand side (for charts)
ETF Exchange traded funds RBA Reserve Bank of Australia
EV Enterprise value RBI Reserve Bank of India
FCF Free cash flow RBNZ Reserve Bank of New Zealand
Fed US Federal Reserve REIT Real estate investment trust
FFO Funds from operations ROE Return on equity
FOMC Federal Open Market Committee ROIC Return on invested capital
FX Foreign exchange RRR Reserve requirement ratio
G10 Group of Ten SAA Strategic asset allocation
G3 Group of Three SDR Special drawing rights
GDP Gross domestic product SNB Swiss National Bank
GPIF Government Pension Investment Fund TAA Tactical asset allocation
HC Hard currency TWI Trade-Weighted Index
HY High yield VIX Volatility Index
IBD Interest-bearing debt WTI West Texas Intermediate
IC Credit Suisse Investment Committee YoY Year-on-year
IG Investment grade YTD Year-to-date
ILB Inflation-linked bond Personal Consumption An indicator of the average increase in prices for all domestic Expenditure (PCE defla- personal consumption tor)
Currency codes frequently used in reports
Code Currency Code Currency
ARS Argentine peso KRW South Korean won
AUD Australian dollar MXN Mexican peso
BRL Brazilian real MYR Malaysian ringgit
CAD Canadian dollar NOK Norwegian krone
CHF Swiss franc NZD New Zealand dollar
CLP Chilean peso PEN Peruvian nuevo sol
CNY Chinese yuan PHP Philippine peso
COP Colombian peso PLN Polish złoty
CZK Czech koruna RUB Russian ruble
EUR Euro SEK Swedish kronakronor
GBP Pound sterling SGD Singapore dollar
HKD Hong Kong dollar THB Thai baht
HUF Hungarian forint TRY Turkish lira
IDR Indonesian rupiah TWD New Taiwan dollar
ILS Israeli new shekel USD United States dollar
INR Indian rupee ZAR South African rand
JPY Japanese yen
Important information on derivatives
Pricing Option premiums and prices mentioned are indicative only Option premiums and prices can be subject to very rapid changes The prices and premiums mentioned are as of the time indicated in the text and might have changed substantially in the meantime
Risks Derivatives are complex instruments and are intended for sale only to investors who are capable of understanding and assuming all the risks involved Investors must be aware that adding option positions to an existing portfolio may change the characteristics and behavior of that portfolio substantially A portfoliorsquos sensitivity to certain market moves can be heavily impacted by the leverage effect of options
Buying calls Investors who buy call options risk the loss of the entire premium paid if the underlying security trades below the strike price at expiration
Buying puts Investors who buy put options risk loss of the entire premium paid if the underlying security finishes above the strike price at expiration
Selling calls Investors who sell calls commit themselves to sell the underlying for the strike price even if the market price of the underlying is substantially higher Investors who sell covered calls (own the underlying security and sell a call) risk limiting their upside to the strike price plus the upfront premium received and may have their security called away if the security price exceeds the strike price of the short call Additionally the investor has full downside participation that is only partially offset by the premium received upfront If investors are forced to sell the underlying they might be subject to taxing Investors shorting naked calls (ie selling calls but without holding the underlying security) risk unlimited losses of security price less strike price
Selling puts Put sellers commit to buying the underlying security at the strike price in the event the security falls below the strike price The maximum loss is the full strike price less the premium received for selling the put
Buying call spreads Investors who buy call spreads (buy a call and sell a call with a higher strike) risk the loss of the entire premium paid if the underlying trades below the lower strike price at expiration The maximum gain from buying call spreads is the difference between the strike prices less the upfront premium paid
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 21
Selling naked call spreads Selling naked call spreads (sell a call and buy a farther out-of-the-money call with no underlying security position) Investors risk a maximum loss of the difference between the long call strike and the short call strike less the upfront premium taken in if the underlying security finishes above the long call strike at expiration The maximum gain is the upfront premium taken in if the security finishes below the short call strike at expiration
Buying put spreads Investors who buy put spreads (buy a put and sell a put with a lower strike price) also have a maximum loss of the upfront premium paid The maximum gain from buying put spreads is the difference between the strike prices less the upfront premium paid
Buying strangles Buying strangles (buy put and buy call) The maximum loss is the entire premium paid for both options if the underlying trades between the put strike and the call strike at expiration
Selling strangles or straddles Investors who are long a security and short a strangle or straddle risk capping their upside in the security to the strike price of the call that is sold plus the upfront premium received Additionally if the security trades below the strike price of the short put investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short put and will also experience losses in the security position if they owns shares The maximum potential loss is the full value of the strike price (less the value of the premium received) plus losses on the long security position Investors who are short naked strangles or straddles have unlimited potential loss since if the security trades above the call strike price investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short call In addition they are obligated to buy the security at the put strike price (less upfront premium received) if the security fin-ishes below the put strike price at expiration
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 22
Important information on mutual funds Fees and charges etc Different types of fees and commissions (subscription fee amount which must be retained in trust assets repurchase fee etc) are charged when investment trustsfunds are purchased and sold In addition apart from these fees and commissions trust and management fees and other fees (audit fee trust administrative charges carried interest etc) are charged and borne by you through your trust asset Fees and commissions borne by you will be a sum of these amounts Such fees and commissions vary depending on the investment trustfund and depending on the investment status and therefore we cannot provide specific amounts or calculation methods
For detailed information on fees and commissions etc of each re-spective investment trustfund please refer to the pre-contract documents (prospectus and other supplementary documents)
Important information on dividends bull Dividends are different to interest on deposits and are paid from the net asset value of investment trustsfunds Therefore when dividends are paid the base value (net asset value per unit) will decrease by an amount equivalent to the amount paid
bull Dividends may be paid exceeding the profit earned during the calculation period (trading profit including profits of dividends etc after expenses) In this case the base value (net asset value per unit) on the settlement date in this period will decrease compared to that on the settlement date in the previous period Also the level of dividends does not always reflect the rate of return for the investment trustfund during the calculation period
bull A part or all of dividends may be virtually equivalent to some repayment of the principal depending on the purchase price of the investment trustfund by an investor The same can be applied to a case that an increase in the base value (net asset value per unit) is smaller than a dividend amount due to the investment status after purchase of the investment trustfund
Please refer to the prospectus for details
Explanation of major risks (description pursuant to Ar-ticle 37 (Regulation on Advertising etc) of the Financial Instruments and Exchange Act etc) The risks described below are a summary of some general risks of investment trustsfunds (risks which have an impact on net asset value) and do not cover all risks Please refer to the pre-trade documents (prospectus and other supplementary documents)
Price volatility risk Investment trustsfunds invest mainly in equities bonds and derivative products etc The value of the investment trustfund will go up or down due to increases or decreases in the prices of such investments Further the value of such investments will be impacted by political and economic factors the financial standing of an issuer market demand and supply interest rates and other factors
Foreign currency risk Investment trustsfunds which invest in equities or bonds etc denominated in foreign currencies entail a foreign currency risk and the base value (or net asset value) of investment trustsfunds may change depending on the currency exchange rate Even when you do not experience a loss of invest-ment principal when calculated in the base currency you may suffer a loss at conversion into Japanese yen due to fluctuations in exchange rates Fur-thermore investment trustsfunds which utilize currency trading among multiple currencies may incur costs due to such currency trading depending on the difference in short-term interest rates between the currencies and you may suffer a loss
Credit risk For investment trustsfunds which invest in equities or bonds etc the prices of these investments may increase and decrease due to changes in the business or financial standing of the issuer and other factors and you may suffer a loss
Risk pertaining to liquidity Where there is sudden high volume in a particular investment or when sudden changes in the external environment surrounding markets triggers a sudden downturn in a market or period of market turmoil etc investments may not be flexibly traded In such a case a decline in the price of the investment may impact the base value (or net asset value) of the investment trust result-ing in a loss Further the management company may decide to stop calcu-lation of net asset prices or suspend sell or redemption claims
In addition for certain types of investment trustfund there is a risk that particular investments may be designated to a separate account (or side pocket) due to a lack of liquidity When a separate account is utilized by in-vestment trustsfunds restrictions may apply as to when such investments can be liquidated through a sell or redemption claim and there may be a re-striction in the timing or form of redemption claim permissible In particular for Fund of Fund investments when an investment trustfund makes an in-vestment without time limit in another fund the investment trustfund may be influenced by investment results in the other funds
Risk associated with an outflow of money received from sales orders When there is a large volume of sale orders in a short period of time the investment trustfund may be forced to sell structured securities at a lower rate than the prevailing market price to refund monies to investors and as a result you may suffer a loss Also alternative investment trustsfunds gen-erally have a limitation in selling or cashing out the investment compared to traditional investment trustsfunds Many alternative investment trustsfunds only accept a sell or redemption order on a monthly or quarterly basis and therefore you may not be able to rapidly exit the investment in for example times of economic uncertainty
Redemption risk Investment trustsfunds may become subject to mandatory redemption due to a certain reason For details please refer to the pre-trade documents (prospectus and other supplementary documents) before subscription
Concentration risk Investment trustsfunds which invest in a certain investment product or similar investment product group may significantly decrease in value (net asset value) under severe market circumstances
Country risk When changes in political economic and social conditions in investment destination countries and regions cause a dislocation in financial and security markets security prices may significantly change Also investments in emerging markets involve unique risks including small market size and trade volume political and social uncertainties undeveloped market infrastructure such as a clearing system undeveloped information disclosure system and legal system by supervising authorities large fluctuations in exchange rates restrictions on currency remittance to foreign countries and other factors and therefore may have larger price fluctuations compared to investments in major developed markets
Important information on non-Japanese stocks Please refer to the issuer information when you purchase non-Japanese stocks
Disclaimer This material is published solely for information purposes and is intended for the recipientrsquos sole use Credit Suisse does not represent or warrant its ac-curacy or completeness The material is not directly or indirectly intended for any investment solicitation and does not constitute an invitation or offer to conclude a transaction contract for financial instruments etc Credit Suisse accepts no liability for loss arising from the use of the information in this material It is recommended that you consult with the third party professional advisors as to legal or tax issues etc This material should not be reproduced or quoted without the prior express written consent of Credit Suisse The information and opinions expressed in this material were produced by Private Banking Division at Credit Suisse as of the date of writing and are subject to change without notice Views expressed in respect of particular investment products in this material may be different from or inconsistent with the ob-
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 23
servations and views of other divisions besides Private Banking due to the differences in evaluation criteria This material is solely distributed in Japan by Credit Suisse Securities (Japan) Limited Credit Suisse Securities (Japan) Limited will not distribute or forward it outside Japan
You may incur a loss as a result of fluctuations in stock prices if you invest in stocks In relation to foreign stocks you may incur a loss in such stocks due to foreign exchange rate fluctuations etc The market value of bonds is affected by interest rate fluctuations or changes in the financial standing of any issuer etc as such you may incur a loss if you sell such bonds before they are redeemed In relation to foreign bonds you may incur a loss in such bonds due to foreign exchange rate fluctuations etc The net asset value of mutual funds can fall as well as rise due to price changes of underlying stocks bonds etc and foreign exchange rate fluctuations and this may cause you to incur a loss
Structured securities and derivatives are complex instruments 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 of any structured security or transaction may be affected by changes in financial market conditions reference indices volatility and the credit quality of any issuer or reference issuer
Furthermore there are structured securities on which you may incur a loss since the redemption amounts are linked with fluctuations in reference indices etc There are also derivatives on which potential losses may exceed the amount of the initial investment Commission rates for any transactions will be as per the rates agreed between Credit Suisse and you For transactions conducted on a principal to principal basis between Credit Suisse and you the purchase or sale price will be the total consideration Transactions con-
ducted on a principal to principal basis including over the counter derivatives transactions will be quoted as a purchasebid price or selloffer price and for which a difference or spread may exist Charges in relation to transactions will be agreed prior to dealing as per our requirements under the Financial Instruments and Exchange Law
By purchasing financial instruments etc you may incur a loss or a loss in excess of the principal as a result of fluctuations in market prices or other financial indices etc Please read carefully the Pre-Contract Documentation provided for an explanation of associated risks and commissions etc of individual financial instruments etc prior to purchase Please contact your Relationship Manager if you have any questions
UNITED STATES NEITHER THIS REPORT NOR ANY COPY THEREOF MAY BE SENT TAKEN INTO OR DISTRIBUTED IN THE UNITED STATES OR TO ANY US PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE US SECURITIES ACT OF 1933 AS AMENDED)
Credit Suisse Securities (Japan) Limited Financial Instruments Dealer Di-rector-General of Kanto Local Finance Bureau (Kinsho) No 66 a member of Japan Securities Dealers Association Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association
Copyright copy 2021 Credit Suisse Group AG andor its affiliates All rights reserved
21C013A_IS_J
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 24
Imprint
Publisher Credit Suisse Private Banking amp Wealth Management Investment Solutions amp Products
Information about other Investment Solutions amp Products publications Internet httpsinvestmentcredit-suissecom
Intranet (for employees only) httpsisrcsintranet
Subscription (clients) Please contact your customer advisor to subscribe to this publication
Subscription (internal) For information on subscriptions please visit httpisrcsintranetsubscriptions
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 25
EMs Emerging Markets QE Quantitative easing
EMU European Monetary Union QoQ Quarter-on-quarter
EPS Earnings per share rhs right-hand side (for charts)
ETF Exchange traded funds RBA Reserve Bank of Australia
EV Enterprise value RBI Reserve Bank of India
FCF Free cash flow RBNZ Reserve Bank of New Zealand
Fed US Federal Reserve REIT Real estate investment trust
FFO Funds from operations ROE Return on equity
FOMC Federal Open Market Committee ROIC Return on invested capital
FX Foreign exchange RRR Reserve requirement ratio
G10 Group of Ten SAA Strategic asset allocation
G3 Group of Three SDR Special drawing rights
GDP Gross domestic product SNB Swiss National Bank
GPIF Government Pension Investment Fund TAA Tactical asset allocation
HC Hard currency TWI Trade-Weighted Index
HY High yield VIX Volatility Index
IBD Interest-bearing debt WTI West Texas Intermediate
IC Credit Suisse Investment Committee YoY Year-on-year
IG Investment grade YTD Year-to-date
ILB Inflation-linked bond Personal Consumption An indicator of the average increase in prices for all domestic Expenditure (PCE defla- personal consumption tor)
Currency codes frequently used in reports
Code Currency Code Currency
ARS Argentine peso KRW South Korean won
AUD Australian dollar MXN Mexican peso
BRL Brazilian real MYR Malaysian ringgit
CAD Canadian dollar NOK Norwegian krone
CHF Swiss franc NZD New Zealand dollar
CLP Chilean peso PEN Peruvian nuevo sol
CNY Chinese yuan PHP Philippine peso
COP Colombian peso PLN Polish złoty
CZK Czech koruna RUB Russian ruble
EUR Euro SEK Swedish kronakronor
GBP Pound sterling SGD Singapore dollar
HKD Hong Kong dollar THB Thai baht
HUF Hungarian forint TRY Turkish lira
IDR Indonesian rupiah TWD New Taiwan dollar
ILS Israeli new shekel USD United States dollar
INR Indian rupee ZAR South African rand
JPY Japanese yen
Important information on derivatives
Pricing Option premiums and prices mentioned are indicative only Option premiums and prices can be subject to very rapid changes The prices and premiums mentioned are as of the time indicated in the text and might have changed substantially in the meantime
Risks Derivatives are complex instruments and are intended for sale only to investors who are capable of understanding and assuming all the risks involved Investors must be aware that adding option positions to an existing portfolio may change the characteristics and behavior of that portfolio substantially A portfoliorsquos sensitivity to certain market moves can be heavily impacted by the leverage effect of options
Buying calls Investors who buy call options risk the loss of the entire premium paid if the underlying security trades below the strike price at expiration
Buying puts Investors who buy put options risk loss of the entire premium paid if the underlying security finishes above the strike price at expiration
Selling calls Investors who sell calls commit themselves to sell the underlying for the strike price even if the market price of the underlying is substantially higher Investors who sell covered calls (own the underlying security and sell a call) risk limiting their upside to the strike price plus the upfront premium received and may have their security called away if the security price exceeds the strike price of the short call Additionally the investor has full downside participation that is only partially offset by the premium received upfront If investors are forced to sell the underlying they might be subject to taxing Investors shorting naked calls (ie selling calls but without holding the underlying security) risk unlimited losses of security price less strike price
Selling puts Put sellers commit to buying the underlying security at the strike price in the event the security falls below the strike price The maximum loss is the full strike price less the premium received for selling the put
Buying call spreads Investors who buy call spreads (buy a call and sell a call with a higher strike) risk the loss of the entire premium paid if the underlying trades below the lower strike price at expiration The maximum gain from buying call spreads is the difference between the strike prices less the upfront premium paid
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 21
Selling naked call spreads Selling naked call spreads (sell a call and buy a farther out-of-the-money call with no underlying security position) Investors risk a maximum loss of the difference between the long call strike and the short call strike less the upfront premium taken in if the underlying security finishes above the long call strike at expiration The maximum gain is the upfront premium taken in if the security finishes below the short call strike at expiration
Buying put spreads Investors who buy put spreads (buy a put and sell a put with a lower strike price) also have a maximum loss of the upfront premium paid The maximum gain from buying put spreads is the difference between the strike prices less the upfront premium paid
Buying strangles Buying strangles (buy put and buy call) The maximum loss is the entire premium paid for both options if the underlying trades between the put strike and the call strike at expiration
Selling strangles or straddles Investors who are long a security and short a strangle or straddle risk capping their upside in the security to the strike price of the call that is sold plus the upfront premium received Additionally if the security trades below the strike price of the short put investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short put and will also experience losses in the security position if they owns shares The maximum potential loss is the full value of the strike price (less the value of the premium received) plus losses on the long security position Investors who are short naked strangles or straddles have unlimited potential loss since if the security trades above the call strike price investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short call In addition they are obligated to buy the security at the put strike price (less upfront premium received) if the security fin-ishes below the put strike price at expiration
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 22
Important information on mutual funds Fees and charges etc Different types of fees and commissions (subscription fee amount which must be retained in trust assets repurchase fee etc) are charged when investment trustsfunds are purchased and sold In addition apart from these fees and commissions trust and management fees and other fees (audit fee trust administrative charges carried interest etc) are charged and borne by you through your trust asset Fees and commissions borne by you will be a sum of these amounts Such fees and commissions vary depending on the investment trustfund and depending on the investment status and therefore we cannot provide specific amounts or calculation methods
For detailed information on fees and commissions etc of each re-spective investment trustfund please refer to the pre-contract documents (prospectus and other supplementary documents)
Important information on dividends bull Dividends are different to interest on deposits and are paid from the net asset value of investment trustsfunds Therefore when dividends are paid the base value (net asset value per unit) will decrease by an amount equivalent to the amount paid
bull Dividends may be paid exceeding the profit earned during the calculation period (trading profit including profits of dividends etc after expenses) In this case the base value (net asset value per unit) on the settlement date in this period will decrease compared to that on the settlement date in the previous period Also the level of dividends does not always reflect the rate of return for the investment trustfund during the calculation period
bull A part or all of dividends may be virtually equivalent to some repayment of the principal depending on the purchase price of the investment trustfund by an investor The same can be applied to a case that an increase in the base value (net asset value per unit) is smaller than a dividend amount due to the investment status after purchase of the investment trustfund
Please refer to the prospectus for details
Explanation of major risks (description pursuant to Ar-ticle 37 (Regulation on Advertising etc) of the Financial Instruments and Exchange Act etc) The risks described below are a summary of some general risks of investment trustsfunds (risks which have an impact on net asset value) and do not cover all risks Please refer to the pre-trade documents (prospectus and other supplementary documents)
Price volatility risk Investment trustsfunds invest mainly in equities bonds and derivative products etc The value of the investment trustfund will go up or down due to increases or decreases in the prices of such investments Further the value of such investments will be impacted by political and economic factors the financial standing of an issuer market demand and supply interest rates and other factors
Foreign currency risk Investment trustsfunds which invest in equities or bonds etc denominated in foreign currencies entail a foreign currency risk and the base value (or net asset value) of investment trustsfunds may change depending on the currency exchange rate Even when you do not experience a loss of invest-ment principal when calculated in the base currency you may suffer a loss at conversion into Japanese yen due to fluctuations in exchange rates Fur-thermore investment trustsfunds which utilize currency trading among multiple currencies may incur costs due to such currency trading depending on the difference in short-term interest rates between the currencies and you may suffer a loss
Credit risk For investment trustsfunds which invest in equities or bonds etc the prices of these investments may increase and decrease due to changes in the business or financial standing of the issuer and other factors and you may suffer a loss
Risk pertaining to liquidity Where there is sudden high volume in a particular investment or when sudden changes in the external environment surrounding markets triggers a sudden downturn in a market or period of market turmoil etc investments may not be flexibly traded In such a case a decline in the price of the investment may impact the base value (or net asset value) of the investment trust result-ing in a loss Further the management company may decide to stop calcu-lation of net asset prices or suspend sell or redemption claims
In addition for certain types of investment trustfund there is a risk that particular investments may be designated to a separate account (or side pocket) due to a lack of liquidity When a separate account is utilized by in-vestment trustsfunds restrictions may apply as to when such investments can be liquidated through a sell or redemption claim and there may be a re-striction in the timing or form of redemption claim permissible In particular for Fund of Fund investments when an investment trustfund makes an in-vestment without time limit in another fund the investment trustfund may be influenced by investment results in the other funds
Risk associated with an outflow of money received from sales orders When there is a large volume of sale orders in a short period of time the investment trustfund may be forced to sell structured securities at a lower rate than the prevailing market price to refund monies to investors and as a result you may suffer a loss Also alternative investment trustsfunds gen-erally have a limitation in selling or cashing out the investment compared to traditional investment trustsfunds Many alternative investment trustsfunds only accept a sell or redemption order on a monthly or quarterly basis and therefore you may not be able to rapidly exit the investment in for example times of economic uncertainty
Redemption risk Investment trustsfunds may become subject to mandatory redemption due to a certain reason For details please refer to the pre-trade documents (prospectus and other supplementary documents) before subscription
Concentration risk Investment trustsfunds which invest in a certain investment product or similar investment product group may significantly decrease in value (net asset value) under severe market circumstances
Country risk When changes in political economic and social conditions in investment destination countries and regions cause a dislocation in financial and security markets security prices may significantly change Also investments in emerging markets involve unique risks including small market size and trade volume political and social uncertainties undeveloped market infrastructure such as a clearing system undeveloped information disclosure system and legal system by supervising authorities large fluctuations in exchange rates restrictions on currency remittance to foreign countries and other factors and therefore may have larger price fluctuations compared to investments in major developed markets
Important information on non-Japanese stocks Please refer to the issuer information when you purchase non-Japanese stocks
Disclaimer This material is published solely for information purposes and is intended for the recipientrsquos sole use Credit Suisse does not represent or warrant its ac-curacy or completeness The material is not directly or indirectly intended for any investment solicitation and does not constitute an invitation or offer to conclude a transaction contract for financial instruments etc Credit Suisse accepts no liability for loss arising from the use of the information in this material It is recommended that you consult with the third party professional advisors as to legal or tax issues etc This material should not be reproduced or quoted without the prior express written consent of Credit Suisse The information and opinions expressed in this material were produced by Private Banking Division at Credit Suisse as of the date of writing and are subject to change without notice Views expressed in respect of particular investment products in this material may be different from or inconsistent with the ob-
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 23
servations and views of other divisions besides Private Banking due to the differences in evaluation criteria This material is solely distributed in Japan by Credit Suisse Securities (Japan) Limited Credit Suisse Securities (Japan) Limited will not distribute or forward it outside Japan
You may incur a loss as a result of fluctuations in stock prices if you invest in stocks In relation to foreign stocks you may incur a loss in such stocks due to foreign exchange rate fluctuations etc The market value of bonds is affected by interest rate fluctuations or changes in the financial standing of any issuer etc as such you may incur a loss if you sell such bonds before they are redeemed In relation to foreign bonds you may incur a loss in such bonds due to foreign exchange rate fluctuations etc The net asset value of mutual funds can fall as well as rise due to price changes of underlying stocks bonds etc and foreign exchange rate fluctuations and this may cause you to incur a loss
Structured securities and derivatives are complex instruments 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 of any structured security or transaction may be affected by changes in financial market conditions reference indices volatility and the credit quality of any issuer or reference issuer
Furthermore there are structured securities on which you may incur a loss since the redemption amounts are linked with fluctuations in reference indices etc There are also derivatives on which potential losses may exceed the amount of the initial investment Commission rates for any transactions will be as per the rates agreed between Credit Suisse and you For transactions conducted on a principal to principal basis between Credit Suisse and you the purchase or sale price will be the total consideration Transactions con-
ducted on a principal to principal basis including over the counter derivatives transactions will be quoted as a purchasebid price or selloffer price and for which a difference or spread may exist Charges in relation to transactions will be agreed prior to dealing as per our requirements under the Financial Instruments and Exchange Law
By purchasing financial instruments etc you may incur a loss or a loss in excess of the principal as a result of fluctuations in market prices or other financial indices etc Please read carefully the Pre-Contract Documentation provided for an explanation of associated risks and commissions etc of individual financial instruments etc prior to purchase Please contact your Relationship Manager if you have any questions
UNITED STATES NEITHER THIS REPORT NOR ANY COPY THEREOF MAY BE SENT TAKEN INTO OR DISTRIBUTED IN THE UNITED STATES OR TO ANY US PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE US SECURITIES ACT OF 1933 AS AMENDED)
Credit Suisse Securities (Japan) Limited Financial Instruments Dealer Di-rector-General of Kanto Local Finance Bureau (Kinsho) No 66 a member of Japan Securities Dealers Association Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association
Copyright copy 2021 Credit Suisse Group AG andor its affiliates All rights reserved
21C013A_IS_J
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 24
Imprint
Publisher Credit Suisse Private Banking amp Wealth Management Investment Solutions amp Products
Information about other Investment Solutions amp Products publications Internet httpsinvestmentcredit-suissecom
Intranet (for employees only) httpsisrcsintranet
Subscription (clients) Please contact your customer advisor to subscribe to this publication
Subscription (internal) For information on subscriptions please visit httpisrcsintranetsubscriptions
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 25
Selling naked call spreads Selling naked call spreads (sell a call and buy a farther out-of-the-money call with no underlying security position) Investors risk a maximum loss of the difference between the long call strike and the short call strike less the upfront premium taken in if the underlying security finishes above the long call strike at expiration The maximum gain is the upfront premium taken in if the security finishes below the short call strike at expiration
Buying put spreads Investors who buy put spreads (buy a put and sell a put with a lower strike price) also have a maximum loss of the upfront premium paid The maximum gain from buying put spreads is the difference between the strike prices less the upfront premium paid
Buying strangles Buying strangles (buy put and buy call) The maximum loss is the entire premium paid for both options if the underlying trades between the put strike and the call strike at expiration
Selling strangles or straddles Investors who are long a security and short a strangle or straddle risk capping their upside in the security to the strike price of the call that is sold plus the upfront premium received Additionally if the security trades below the strike price of the short put investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short put and will also experience losses in the security position if they owns shares The maximum potential loss is the full value of the strike price (less the value of the premium received) plus losses on the long security position Investors who are short naked strangles or straddles have unlimited potential loss since if the security trades above the call strike price investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short call In addition they are obligated to buy the security at the put strike price (less upfront premium received) if the security fin-ishes below the put strike price at expiration
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 22
Important information on mutual funds Fees and charges etc Different types of fees and commissions (subscription fee amount which must be retained in trust assets repurchase fee etc) are charged when investment trustsfunds are purchased and sold In addition apart from these fees and commissions trust and management fees and other fees (audit fee trust administrative charges carried interest etc) are charged and borne by you through your trust asset Fees and commissions borne by you will be a sum of these amounts Such fees and commissions vary depending on the investment trustfund and depending on the investment status and therefore we cannot provide specific amounts or calculation methods
For detailed information on fees and commissions etc of each re-spective investment trustfund please refer to the pre-contract documents (prospectus and other supplementary documents)
Important information on dividends bull Dividends are different to interest on deposits and are paid from the net asset value of investment trustsfunds Therefore when dividends are paid the base value (net asset value per unit) will decrease by an amount equivalent to the amount paid
bull Dividends may be paid exceeding the profit earned during the calculation period (trading profit including profits of dividends etc after expenses) In this case the base value (net asset value per unit) on the settlement date in this period will decrease compared to that on the settlement date in the previous period Also the level of dividends does not always reflect the rate of return for the investment trustfund during the calculation period
bull A part or all of dividends may be virtually equivalent to some repayment of the principal depending on the purchase price of the investment trustfund by an investor The same can be applied to a case that an increase in the base value (net asset value per unit) is smaller than a dividend amount due to the investment status after purchase of the investment trustfund
Please refer to the prospectus for details
Explanation of major risks (description pursuant to Ar-ticle 37 (Regulation on Advertising etc) of the Financial Instruments and Exchange Act etc) The risks described below are a summary of some general risks of investment trustsfunds (risks which have an impact on net asset value) and do not cover all risks Please refer to the pre-trade documents (prospectus and other supplementary documents)
Price volatility risk Investment trustsfunds invest mainly in equities bonds and derivative products etc The value of the investment trustfund will go up or down due to increases or decreases in the prices of such investments Further the value of such investments will be impacted by political and economic factors the financial standing of an issuer market demand and supply interest rates and other factors
Foreign currency risk Investment trustsfunds which invest in equities or bonds etc denominated in foreign currencies entail a foreign currency risk and the base value (or net asset value) of investment trustsfunds may change depending on the currency exchange rate Even when you do not experience a loss of invest-ment principal when calculated in the base currency you may suffer a loss at conversion into Japanese yen due to fluctuations in exchange rates Fur-thermore investment trustsfunds which utilize currency trading among multiple currencies may incur costs due to such currency trading depending on the difference in short-term interest rates between the currencies and you may suffer a loss
Credit risk For investment trustsfunds which invest in equities or bonds etc the prices of these investments may increase and decrease due to changes in the business or financial standing of the issuer and other factors and you may suffer a loss
Risk pertaining to liquidity Where there is sudden high volume in a particular investment or when sudden changes in the external environment surrounding markets triggers a sudden downturn in a market or period of market turmoil etc investments may not be flexibly traded In such a case a decline in the price of the investment may impact the base value (or net asset value) of the investment trust result-ing in a loss Further the management company may decide to stop calcu-lation of net asset prices or suspend sell or redemption claims
In addition for certain types of investment trustfund there is a risk that particular investments may be designated to a separate account (or side pocket) due to a lack of liquidity When a separate account is utilized by in-vestment trustsfunds restrictions may apply as to when such investments can be liquidated through a sell or redemption claim and there may be a re-striction in the timing or form of redemption claim permissible In particular for Fund of Fund investments when an investment trustfund makes an in-vestment without time limit in another fund the investment trustfund may be influenced by investment results in the other funds
Risk associated with an outflow of money received from sales orders When there is a large volume of sale orders in a short period of time the investment trustfund may be forced to sell structured securities at a lower rate than the prevailing market price to refund monies to investors and as a result you may suffer a loss Also alternative investment trustsfunds gen-erally have a limitation in selling or cashing out the investment compared to traditional investment trustsfunds Many alternative investment trustsfunds only accept a sell or redemption order on a monthly or quarterly basis and therefore you may not be able to rapidly exit the investment in for example times of economic uncertainty
Redemption risk Investment trustsfunds may become subject to mandatory redemption due to a certain reason For details please refer to the pre-trade documents (prospectus and other supplementary documents) before subscription
Concentration risk Investment trustsfunds which invest in a certain investment product or similar investment product group may significantly decrease in value (net asset value) under severe market circumstances
Country risk When changes in political economic and social conditions in investment destination countries and regions cause a dislocation in financial and security markets security prices may significantly change Also investments in emerging markets involve unique risks including small market size and trade volume political and social uncertainties undeveloped market infrastructure such as a clearing system undeveloped information disclosure system and legal system by supervising authorities large fluctuations in exchange rates restrictions on currency remittance to foreign countries and other factors and therefore may have larger price fluctuations compared to investments in major developed markets
Important information on non-Japanese stocks Please refer to the issuer information when you purchase non-Japanese stocks
Disclaimer This material is published solely for information purposes and is intended for the recipientrsquos sole use Credit Suisse does not represent or warrant its ac-curacy or completeness The material is not directly or indirectly intended for any investment solicitation and does not constitute an invitation or offer to conclude a transaction contract for financial instruments etc Credit Suisse accepts no liability for loss arising from the use of the information in this material It is recommended that you consult with the third party professional advisors as to legal or tax issues etc This material should not be reproduced or quoted without the prior express written consent of Credit Suisse The information and opinions expressed in this material were produced by Private Banking Division at Credit Suisse as of the date of writing and are subject to change without notice Views expressed in respect of particular investment products in this material may be different from or inconsistent with the ob-
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 23
servations and views of other divisions besides Private Banking due to the differences in evaluation criteria This material is solely distributed in Japan by Credit Suisse Securities (Japan) Limited Credit Suisse Securities (Japan) Limited will not distribute or forward it outside Japan
You may incur a loss as a result of fluctuations in stock prices if you invest in stocks In relation to foreign stocks you may incur a loss in such stocks due to foreign exchange rate fluctuations etc The market value of bonds is affected by interest rate fluctuations or changes in the financial standing of any issuer etc as such you may incur a loss if you sell such bonds before they are redeemed In relation to foreign bonds you may incur a loss in such bonds due to foreign exchange rate fluctuations etc The net asset value of mutual funds can fall as well as rise due to price changes of underlying stocks bonds etc and foreign exchange rate fluctuations and this may cause you to incur a loss
Structured securities and derivatives are complex instruments 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 of any structured security or transaction may be affected by changes in financial market conditions reference indices volatility and the credit quality of any issuer or reference issuer
Furthermore there are structured securities on which you may incur a loss since the redemption amounts are linked with fluctuations in reference indices etc There are also derivatives on which potential losses may exceed the amount of the initial investment Commission rates for any transactions will be as per the rates agreed between Credit Suisse and you For transactions conducted on a principal to principal basis between Credit Suisse and you the purchase or sale price will be the total consideration Transactions con-
ducted on a principal to principal basis including over the counter derivatives transactions will be quoted as a purchasebid price or selloffer price and for which a difference or spread may exist Charges in relation to transactions will be agreed prior to dealing as per our requirements under the Financial Instruments and Exchange Law
By purchasing financial instruments etc you may incur a loss or a loss in excess of the principal as a result of fluctuations in market prices or other financial indices etc Please read carefully the Pre-Contract Documentation provided for an explanation of associated risks and commissions etc of individual financial instruments etc prior to purchase Please contact your Relationship Manager if you have any questions
UNITED STATES NEITHER THIS REPORT NOR ANY COPY THEREOF MAY BE SENT TAKEN INTO OR DISTRIBUTED IN THE UNITED STATES OR TO ANY US PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE US SECURITIES ACT OF 1933 AS AMENDED)
Credit Suisse Securities (Japan) Limited Financial Instruments Dealer Di-rector-General of Kanto Local Finance Bureau (Kinsho) No 66 a member of Japan Securities Dealers Association Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association
Copyright copy 2021 Credit Suisse Group AG andor its affiliates All rights reserved
21C013A_IS_J
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 24
Imprint
Publisher Credit Suisse Private Banking amp Wealth Management Investment Solutions amp Products
Information about other Investment Solutions amp Products publications Internet httpsinvestmentcredit-suissecom
Intranet (for employees only) httpsisrcsintranet
Subscription (clients) Please contact your customer advisor to subscribe to this publication
Subscription (internal) For information on subscriptions please visit httpisrcsintranetsubscriptions
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 25
Important information on mutual funds Fees and charges etc Different types of fees and commissions (subscription fee amount which must be retained in trust assets repurchase fee etc) are charged when investment trustsfunds are purchased and sold In addition apart from these fees and commissions trust and management fees and other fees (audit fee trust administrative charges carried interest etc) are charged and borne by you through your trust asset Fees and commissions borne by you will be a sum of these amounts Such fees and commissions vary depending on the investment trustfund and depending on the investment status and therefore we cannot provide specific amounts or calculation methods
For detailed information on fees and commissions etc of each re-spective investment trustfund please refer to the pre-contract documents (prospectus and other supplementary documents)
Important information on dividends bull Dividends are different to interest on deposits and are paid from the net asset value of investment trustsfunds Therefore when dividends are paid the base value (net asset value per unit) will decrease by an amount equivalent to the amount paid
bull Dividends may be paid exceeding the profit earned during the calculation period (trading profit including profits of dividends etc after expenses) In this case the base value (net asset value per unit) on the settlement date in this period will decrease compared to that on the settlement date in the previous period Also the level of dividends does not always reflect the rate of return for the investment trustfund during the calculation period
bull A part or all of dividends may be virtually equivalent to some repayment of the principal depending on the purchase price of the investment trustfund by an investor The same can be applied to a case that an increase in the base value (net asset value per unit) is smaller than a dividend amount due to the investment status after purchase of the investment trustfund
Please refer to the prospectus for details
Explanation of major risks (description pursuant to Ar-ticle 37 (Regulation on Advertising etc) of the Financial Instruments and Exchange Act etc) The risks described below are a summary of some general risks of investment trustsfunds (risks which have an impact on net asset value) and do not cover all risks Please refer to the pre-trade documents (prospectus and other supplementary documents)
Price volatility risk Investment trustsfunds invest mainly in equities bonds and derivative products etc The value of the investment trustfund will go up or down due to increases or decreases in the prices of such investments Further the value of such investments will be impacted by political and economic factors the financial standing of an issuer market demand and supply interest rates and other factors
Foreign currency risk Investment trustsfunds which invest in equities or bonds etc denominated in foreign currencies entail a foreign currency risk and the base value (or net asset value) of investment trustsfunds may change depending on the currency exchange rate Even when you do not experience a loss of invest-ment principal when calculated in the base currency you may suffer a loss at conversion into Japanese yen due to fluctuations in exchange rates Fur-thermore investment trustsfunds which utilize currency trading among multiple currencies may incur costs due to such currency trading depending on the difference in short-term interest rates between the currencies and you may suffer a loss
Credit risk For investment trustsfunds which invest in equities or bonds etc the prices of these investments may increase and decrease due to changes in the business or financial standing of the issuer and other factors and you may suffer a loss
Risk pertaining to liquidity Where there is sudden high volume in a particular investment or when sudden changes in the external environment surrounding markets triggers a sudden downturn in a market or period of market turmoil etc investments may not be flexibly traded In such a case a decline in the price of the investment may impact the base value (or net asset value) of the investment trust result-ing in a loss Further the management company may decide to stop calcu-lation of net asset prices or suspend sell or redemption claims
In addition for certain types of investment trustfund there is a risk that particular investments may be designated to a separate account (or side pocket) due to a lack of liquidity When a separate account is utilized by in-vestment trustsfunds restrictions may apply as to when such investments can be liquidated through a sell or redemption claim and there may be a re-striction in the timing or form of redemption claim permissible In particular for Fund of Fund investments when an investment trustfund makes an in-vestment without time limit in another fund the investment trustfund may be influenced by investment results in the other funds
Risk associated with an outflow of money received from sales orders When there is a large volume of sale orders in a short period of time the investment trustfund may be forced to sell structured securities at a lower rate than the prevailing market price to refund monies to investors and as a result you may suffer a loss Also alternative investment trustsfunds gen-erally have a limitation in selling or cashing out the investment compared to traditional investment trustsfunds Many alternative investment trustsfunds only accept a sell or redemption order on a monthly or quarterly basis and therefore you may not be able to rapidly exit the investment in for example times of economic uncertainty
Redemption risk Investment trustsfunds may become subject to mandatory redemption due to a certain reason For details please refer to the pre-trade documents (prospectus and other supplementary documents) before subscription
Concentration risk Investment trustsfunds which invest in a certain investment product or similar investment product group may significantly decrease in value (net asset value) under severe market circumstances
Country risk When changes in political economic and social conditions in investment destination countries and regions cause a dislocation in financial and security markets security prices may significantly change Also investments in emerging markets involve unique risks including small market size and trade volume political and social uncertainties undeveloped market infrastructure such as a clearing system undeveloped information disclosure system and legal system by supervising authorities large fluctuations in exchange rates restrictions on currency remittance to foreign countries and other factors and therefore may have larger price fluctuations compared to investments in major developed markets
Important information on non-Japanese stocks Please refer to the issuer information when you purchase non-Japanese stocks
Disclaimer This material is published solely for information purposes and is intended for the recipientrsquos sole use Credit Suisse does not represent or warrant its ac-curacy or completeness The material is not directly or indirectly intended for any investment solicitation and does not constitute an invitation or offer to conclude a transaction contract for financial instruments etc Credit Suisse accepts no liability for loss arising from the use of the information in this material It is recommended that you consult with the third party professional advisors as to legal or tax issues etc This material should not be reproduced or quoted without the prior express written consent of Credit Suisse The information and opinions expressed in this material were produced by Private Banking Division at Credit Suisse as of the date of writing and are subject to change without notice Views expressed in respect of particular investment products in this material may be different from or inconsistent with the ob-
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 23
servations and views of other divisions besides Private Banking due to the differences in evaluation criteria This material is solely distributed in Japan by Credit Suisse Securities (Japan) Limited Credit Suisse Securities (Japan) Limited will not distribute or forward it outside Japan
You may incur a loss as a result of fluctuations in stock prices if you invest in stocks In relation to foreign stocks you may incur a loss in such stocks due to foreign exchange rate fluctuations etc The market value of bonds is affected by interest rate fluctuations or changes in the financial standing of any issuer etc as such you may incur a loss if you sell such bonds before they are redeemed In relation to foreign bonds you may incur a loss in such bonds due to foreign exchange rate fluctuations etc The net asset value of mutual funds can fall as well as rise due to price changes of underlying stocks bonds etc and foreign exchange rate fluctuations and this may cause you to incur a loss
Structured securities and derivatives are complex instruments 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 of any structured security or transaction may be affected by changes in financial market conditions reference indices volatility and the credit quality of any issuer or reference issuer
Furthermore there are structured securities on which you may incur a loss since the redemption amounts are linked with fluctuations in reference indices etc There are also derivatives on which potential losses may exceed the amount of the initial investment Commission rates for any transactions will be as per the rates agreed between Credit Suisse and you For transactions conducted on a principal to principal basis between Credit Suisse and you the purchase or sale price will be the total consideration Transactions con-
ducted on a principal to principal basis including over the counter derivatives transactions will be quoted as a purchasebid price or selloffer price and for which a difference or spread may exist Charges in relation to transactions will be agreed prior to dealing as per our requirements under the Financial Instruments and Exchange Law
By purchasing financial instruments etc you may incur a loss or a loss in excess of the principal as a result of fluctuations in market prices or other financial indices etc Please read carefully the Pre-Contract Documentation provided for an explanation of associated risks and commissions etc of individual financial instruments etc prior to purchase Please contact your Relationship Manager if you have any questions
UNITED STATES NEITHER THIS REPORT NOR ANY COPY THEREOF MAY BE SENT TAKEN INTO OR DISTRIBUTED IN THE UNITED STATES OR TO ANY US PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE US SECURITIES ACT OF 1933 AS AMENDED)
Credit Suisse Securities (Japan) Limited Financial Instruments Dealer Di-rector-General of Kanto Local Finance Bureau (Kinsho) No 66 a member of Japan Securities Dealers Association Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association
Copyright copy 2021 Credit Suisse Group AG andor its affiliates All rights reserved
21C013A_IS_J
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 24
Imprint
Publisher Credit Suisse Private Banking amp Wealth Management Investment Solutions amp Products
Information about other Investment Solutions amp Products publications Internet httpsinvestmentcredit-suissecom
Intranet (for employees only) httpsisrcsintranet
Subscription (clients) Please contact your customer advisor to subscribe to this publication
Subscription (internal) For information on subscriptions please visit httpisrcsintranetsubscriptions
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 25
servations and views of other divisions besides Private Banking due to the differences in evaluation criteria This material is solely distributed in Japan by Credit Suisse Securities (Japan) Limited Credit Suisse Securities (Japan) Limited will not distribute or forward it outside Japan
You may incur a loss as a result of fluctuations in stock prices if you invest in stocks In relation to foreign stocks you may incur a loss in such stocks due to foreign exchange rate fluctuations etc The market value of bonds is affected by interest rate fluctuations or changes in the financial standing of any issuer etc as such you may incur a loss if you sell such bonds before they are redeemed In relation to foreign bonds you may incur a loss in such bonds due to foreign exchange rate fluctuations etc The net asset value of mutual funds can fall as well as rise due to price changes of underlying stocks bonds etc and foreign exchange rate fluctuations and this may cause you to incur a loss
Structured securities and derivatives are complex instruments 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 of any structured security or transaction may be affected by changes in financial market conditions reference indices volatility and the credit quality of any issuer or reference issuer
Furthermore there are structured securities on which you may incur a loss since the redemption amounts are linked with fluctuations in reference indices etc There are also derivatives on which potential losses may exceed the amount of the initial investment Commission rates for any transactions will be as per the rates agreed between Credit Suisse and you For transactions conducted on a principal to principal basis between Credit Suisse and you the purchase or sale price will be the total consideration Transactions con-
ducted on a principal to principal basis including over the counter derivatives transactions will be quoted as a purchasebid price or selloffer price and for which a difference or spread may exist Charges in relation to transactions will be agreed prior to dealing as per our requirements under the Financial Instruments and Exchange Law
By purchasing financial instruments etc you may incur a loss or a loss in excess of the principal as a result of fluctuations in market prices or other financial indices etc Please read carefully the Pre-Contract Documentation provided for an explanation of associated risks and commissions etc of individual financial instruments etc prior to purchase Please contact your Relationship Manager if you have any questions
UNITED STATES NEITHER THIS REPORT NOR ANY COPY THEREOF MAY BE SENT TAKEN INTO OR DISTRIBUTED IN THE UNITED STATES OR TO ANY US PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE US SECURITIES ACT OF 1933 AS AMENDED)
Credit Suisse Securities (Japan) Limited Financial Instruments Dealer Di-rector-General of Kanto Local Finance Bureau (Kinsho) No 66 a member of Japan Securities Dealers Association Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association
Copyright copy 2021 Credit Suisse Group AG andor its affiliates All rights reserved
21C013A_IS_J
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 24
Imprint
Publisher Credit Suisse Private Banking amp Wealth Management Investment Solutions amp Products
Information about other Investment Solutions amp Products publications Internet httpsinvestmentcredit-suissecom
Intranet (for employees only) httpsisrcsintranet
Subscription (clients) Please contact your customer advisor to subscribe to this publication
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Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 25
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Intranet (for employees only) httpsisrcsintranet
Subscription (clients) Please contact your customer advisor to subscribe to this publication
Subscription (internal) For information on subscriptions please visit httpisrcsintranetsubscriptions
Investment Monthly | Japan edition Credit Suisse Securities (Japan) Ltd February 2021 25