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Analyst Actions: Credit Suisse Global Equity Strategy - Regional Allocation, An Early Look Into 2013

GEM: We marginally increase our overweight. Relative PMIs are improving and tend to lead relative performance by six months. This is the best stage of the global cycle (with ISM new orders above 50 and rising) for GEM performance. Relative valuations are attractive (P/B relative to the US close to 2008 lows; an implied EPS growth premium of only 16%). GEM have superior policy flexibility, with less government debt and higher nominal rates. More global QE is likely to result in capital inflows into GEM. Korea, China and Russia stand out.

UK: We reduce the size of our overweight, as the UK is a defensive market and it has slipped to third on our composite scorecard. We are still overweight, as we still believe that sterling and UK growth are set to surprise modestly (helping unhedged performance) and the UK enjoys the best co-operation between the central bank and the Treasury. Buy domestic UK.

Continental Europe: Downgrade to 5% underweight from benchmark, given that the region is convincingly bottom of our economic momentum scorecard and relative earnings momentum is falling again, investor complacency seems to be returning (relative risk appetite is at a 3-year high and in our client survey Europe has moved down on the list of concerns) despite the fact that we are only 60% of the way through the necessary adjustment, in our view. Euro strength is also problematic. Valuations are only obviously cheap on trend earnings. We would stress that we do not believe there will be another significant flare-up of the sovereign crisis. We continue to recommend dollar earners, DAX, domestic Germany and Italian risk. We are cautious of domestic France and Spanish risk.

Japan: Benchmark. Both fiscal and monetary policy look abnormally tight (and we have been disappointed by the Bank of Japan). Earnings momentum is very poor. Only Japan's pro-cyclicality, a probable LDP-led government next year and (still) very cheap asset-based valuations stop us from going underweight. We prefer to play the global cycle via GEM.

US: Halving our underweight. The US scores top on our economic and earnings momentum scorecards and we believe that private sector GDP growth in the US could trend at c.3-4%. The problems are relative valuations, the counter-cyclicality of the US, and near-term the fiscal cliff.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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