UBS Equity Compass May - EN (1) - 1

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UBS Equity Compass

CIO WM Research May 2013
Japan has awakened
Japanese equities Not too late
US equities Stay overweight
Emerging markets Assume neutral position
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UBS Equity Compass
Contents
UBS Equity Compass This report has been prepared by UBS AG. Please see the important disclaimer at the end of the document. Past performance is not an indication of future returns. The market prices provided are closing prices on the respective principal stock exchange. This applies to all performance charts and tables in this publication. Publication UBS AG, UBS CIO WM Research, P.O. Box, CH-8098 Zurich Editor-in-Chief Stefan Schneider, Analyst, UBS AG Editors CLS Communication AG, Basel Editorial deadline 26 April 2013 Project Management Virender Negi* Desktop Publishing CIO Digital & Print Publishing Translation CLS Communication AG, Basel Cover picture bigabiga/fotolia.com Languages Published in English and German Contact ubs-research@ubs.com UBS homepage: www.ubs.com
Editorial Japan has awakened....................................................................................3 Strategy Positive on Japanese equities.......................................................................4 Regions Switzerland..................................................................................................5 Eurozone.....................................................................................................6 Germany......................................................................................................7 United Kingdom..........................................................................................8 United States...............................................................................................9 Asia...........................................................................................................10 Emerging markets......................................................................................11 Sectors Automobiles..............................................................................................12 Consumer Discretionary.............................................................................13 Consumer Staples......................................................................................14 Energy.......................................................................................................15 Financials...................................................................................................16 Healthcare.................................................................................................17 Industrials..................................................................................................18 Information Technology.............................................................................19 Materials....................................................................................................20 Real Estate.................................................................................................21 Telecoms....................................................................................................22 Utilities......................................................................................................23 Investment themes US technology: Secular growth, on sale.....................................................24 US mid caps: The sweet spot.....................................................................24 US housing: The long grind higher.............................................................24 Japanese exporters supported by weaker Yen............................................24 No turnaround for European telecoms.......................................................25 UK high quality dividends..........................................................................25 Eurozone high quality dividends.................................................................25 Swiss high quality dividends.......................................................................25 Emerging market equities..........................................................................26 Agribusiness: Efficiency gains from field to fork..........................................26 Western winners from emerging market growth........................................26 Pricing power............................................................................................26 Water: Thirst for investments.....................................................................27 Global REITs: Focus on strong fundamentals...............................................27 Technical analysis....................................................................................28 Global & regional equity sector strategies...........................................30 Selection of UBS CIO WM research publications..................................31
*We would like to thank Virender Negi, an employee of Cognizant Group, for his assistance in preparing this research report. Cognizant staff provide research support services to UBS.
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UBS CIO WM Research May 2013 2
UBS Equity Compass
Editorial
Japan has awakened

Despite the recent run by Japanese equities, we see good reasons to upgrade Japanese equities to overweight. In spite of the low equity valuation of the emerging markets, the fastest-growing region of the world, we are reducing our overweight to neutral. We find it difficult to foresee a near-term catalyst that could unlock this longer-term valuation potential. We are maintaining our overweight position in US equities. Equity market performance was more volatile and less homogenous across the regions last month compared to previous ones. This is due to the growing concerns over the fundamental strength of the relevant global economies, as evidenced in the recent weakness in commodity prices coupled with declines in some economic growth trends such as purchasing managers indices across the US, the Eurozone and China. Following an in-depth assessment of the different regions, we are maintaining our overweight in US equities. We have newly upgraded Japan to overweight and reduced the emerging market overweight to neutral. In Japan, the rally has taken on new impetus since the Bank of Japan announced it would double its monetary base within the next two years. The yens weakness in the past six months significantly boosted earnings growth consensus estimates for the Nikkei for the financial year to March 2014. The Nikkei has run ahead of these earnings upgrades, but based on the current price-to-earnings ratio it is not obviously overvalued relative to its tenyear average. And even if the yen remains at its current level we could still see further earnings upgrades, which would provide additional support. Within Japanese equities, we believe the best opportunity lies in Japanese exporters supported by a weaker yen, as the weaker yen should disproportionally prop up earnings of the respective companies. With respect to the emerging markets, it seems almost counterintuitive that the region of the world with the fastest economic growth also offers the lowest equity valuations. That said, the combined effect of near-term uncertainties over global growth, the future of Chinese policy and the outlook for commodities make it hard to foresee a near-term catalyst that will help the emerging markets realize their significant longer-term valuation potential.
Stefan Schneider, CFA, analyst, UBS AG stefan-za.schneider@ubs.com I hold a PhD from the University of Zurich and am a CFA charterholder. Ihave been analyzing stocks for more than a decade, but I have also gathered industry experience. My education and experience have enabled me to become CIO WM European Head of Equity Research. Yours, Stefan Schneider
Stefan Schneider European Head of Equity Research UBS CIO WM Research
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UBS CIO WM Research May 2013
UBS Equity Compass
Strategy
Positive on Japanese equities

We maintain our preference for US equities. Despite some volatility in recent economic data, domestic demand is holding up solidly, underpinning revenue and earnings growth. We have a preference for Japanese shares relative to global equities. Bold monetary policy easing announced by the Bank of Japan in early April is expected to lead to further rises in Japanese risk assets. The sharp drop in the yen supports strong earnings growth. We have a neutral stance on emerging market equities. Earnings dynamics are relatively weak, lagging the US and Japan in particular. Economic data in key countries have failed to accelerate. Valuations are attractive. We are keeping a cautious position on Canadian equities. The recent slump in gold and oil prices is weighing on the market. We are maintaining our preference for US shares relative to other developed equity markets. The US economy is forecast to expand at a solid pace, although the strong economic dynamics of the first quarter are unlikely to last in coming months. The recovery in the housing market continues to support the domestic economy. The unemployment rate remains high, keeping wage pressure low. With firms keeping costs under control, earnings dynamics remains superior compared with global equities. We keep our cautious view on Canadian equities and recommend switching into US equities. Gold price weakness caps the earnings upside of mining companies. Adopt a preference for Japanese equities The sharp weakening of the yen since last autumn is forecast to lead to high earnings growth this year. The three pillars of Abes policy (monetary policy, fiscal policy and structural reforms) should stimulate economic growth in the coming months and therefore also support strong earnings dynamics. On April 4, the Bank of Japan introduced its new quantitative and qualitative monetary easing program. This bold package is aimed at ending Japans deflationary period and achieving 2% inflation within two years. We expect the BoJs action to influence asset prices positively. Turn tactically neutral on emerging markets Recent economic data have been mixed and weaker than forecast. Earnings dynamics in the emerging markets are clearly lagging developments in the US and Japan. We have therefore moved down to a neutral stance on emerging market equities. Take a positive stance on consumer discretionary globally We have turned positive on consumer discretionary. The sector should benefit from solid consumer demand in major countries. Revenue and earnings growth should continue to be superior.
Markus Irngartinger, CFA, strategist, UBS AG markus.irngartinger@ubs.com I have ten years of experience as an equity strategist joining UBS in 2008. I hold a PhD in economics from the University of Bonn in Germany. In addition, I am a CFA charterholder. Yours, Markus Irngartinger
Yen weakness supports Japanese equities

Topix index and USDJPY exchange rate
1600 1400 1200 1000 800 600 400 2008 Topix (lhs) Source: Bloomberg, UBS 2009 2010 USDJPY (rhs) 2011 2012 2013 120 110 100 90 80 70 60 50
Performance of global equity regions In %

World EMU Japan Switzerland UK US 0 5 10 15 20 25 30 35 40
Performance of global equity sectors In %

Cons Discretionary Cons Staples Energy Financials Healthcare Industrials IT Materials Telecom Utilities 5 YTD 0 1m 5 10 15 20 25
Source: Thomson Reuters, UBS, as of 25 April 2013

Past performance is no indication of future performance. The market prices provided are closing prices on the respective principal exchange.
UBS Equity Compass
Region
Switzerland
Strategy We maintain a neutral stance on Swiss equities relative to global equities. Swiss companies generate a high share of earnings abroad, which provides the basis for robust revenue and earnings growth. In addition, Swiss companies offer solid balance sheets and a high free cash flow yield. Unfortunately, Swiss equities trade at a higher valuation than their global peers. Nevertheless, the dividend yield of close to 3% remains attractive, especially from a historical perspective. Our positioning within the region Swiss equities are no longer valued quite as attractively as they were a few months ago. New investments should therefore be made in stages in order to benefit from possible reversals. We rate companies paying sustainable dividends as the most attractive, followed by mid caps.
Most Preferred
Stefan R. Meyer, analyst, UBS AG stefan-r.meyer@ubs.com I earned a Master of Science in Business Administration from the University of Berne and have been working as an equity analyst for UBSfor over 20 years. Swiss equities are the main focus of my research coverage. Yours, Stefan Meyer
Least Preferred CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF Adecco Alpiq Hldg Autoneum Bachem Belimo Gurit Intershop Kaba Kuehne + Nagel Panalpina Tamedia Vontobel CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF
The reporting season for Swiss corporate results covering the first quarter of 2013 has begun. Overall, the early reporters failed to convince. The key stumbling block was the softer-than-expected economy globally, and particularly in Europe. Equity valuations have also become dearer since share prices have risen steadily for more than a year and a half. In Switzerland, the price to earnings (P/E) ratio based on the forecasts of corporate earnings for the next 12 months has risen from 11x in June 2012 to more than 14x now, thanks to the booming stock market and falling consensus earnings expectations. This places the P/E ratio above the average of 12.7x for the past seven years, but still almost 11% below the peak of 15.6x in 2006/07. The dividend season is now in full swing. This year, companies listed on the Swiss Exchange are paying out some CHF 39 billion to their shareholders a new record. Our preferred investment topic for Swiss equities remains high-quality dividends. The dividend yield on the Swiss equity market is about 3%, while the average yield on the market for fixed-income securities denominated in Swiss francs is only about 1%. We consider this yield gap to be attractive. It is now increasingly important to seek high-quality dividends instead of only high dividend yields. Unlike the highest dividend yielders, equities with high-quality dividends outperform relatively steadily throughout the entire year. In Switzerland we now prefer medium-sized firms (mid caps) to large caps and small caps. Among the three size categories of Swiss equities, mid caps feature the most attractive valuations and the strongest balance sheets. Interestingly, mid caps are also among the best dividend payers. As a group they are also high-quality dividend payers.
Aryzta AG Bloise Daetwyler Emmi AG Flughafen Zurich AG Givaudan Kuoni Mobimo Holding Nestl Novartis Pargesa Holding Roche SGS Straumann Swiss Prime Site Swiss Re Swisscom Source: UBS
As our selected recommendations may change over time, please always consult the underlying Equity Preference List (EPL) for our up-to-date equity preferences. The respective EPL (which also lists the analyst(s) responsible for the selections) can be found on the UBS Research portal that can be accessed via the e-banking platform or via Quotes.
Investing in Switzerland
A monthly guide to investing in Swiss financial markets
CIO WM Research April 2013
Distribution season
Equities Less upside potential, more focus on yields
Bonds Corporate hybrids as alternative
Economy Growing slightly
Investing in Switzerland is a monthly cross-asset investment guide for those interested in investing in the Swiss financial markets, covering equities, bonds, real estate, currencies and more. Available in: English, German, French, Italian Subscribe: here or via client advisor
UBS Equity Compass
Region
Eurozone
Strategy We maintain a neutral stance on Eurozone equities. Continued weak economic growth in large parts of the Eurozone poses a difficult environment. Earnings dynamics are therefore lagging other regions. Consensus earnings growth expectations for 2013 (bottom-up) have moved up to 8% year-on-year for the Euro Stoxx companies on aggregate. This growth figure seems too high to us; we forecast 3% to 5% earnings growth in 2013. Weak earnings growth is balanced by attractive valuations. Our positioning within the region We like defensive stocks and also companies with significant exposure to the emerging regions and the US. Cyclical stocks should preferably have exposure to those regions in particular. In an environment of fresh uncertainty on the debt crisis and macroeconomic growth, sustainable dividends should limit stocks downside risks. In the four weeks from mid-March, the Euro Stoxx 50 gave back all the positive performance it had notched up since the beginning of the year. Up until then, economic data had been supportive, and fears over the Eurozone debt crisis had been gradually fading from investors minds. However, the crisis came back onto the agenda again following the problems in Cyprus. In addition, the recovery in various economic indicators was interrupted in March, and stock prices declined. In particular, cyclical sectors such as materials, consumer discretionary, industrials and energy fell strongly, as did financials. The more defensive sectors held up better. Since the end of last year, consensus estimates for the Euro Stoxx 50s total 2013 earnings have fallen by around 4%; however, downgrade momentum has started to fade. Overall, expected earnings growth stands at around 9% for the year as a whole. This figure still seems too high to us; we forecast 3% to 5% earnings growth in 2013. Nevertheless, earnings weakness is balanced in our view by a valuation that is far from excessive. We maintain our neutral stance on Eurozone equities and continue to prefer defensive stocks. In addition, given the fresh uncertainty in the markets, high-quality dividend stocks should limit downside risk to the portfolio in the current environment; Euro Stoxx 50 companies total dividend payments of EUR 77 billion represent an attractive yield of around 4%. Despite recent weakness, economic indicators suggest that the Eurozone economy bottomed out in 2012 and is slowly improving from a sequential growth perspective. It will make sense to add cyclical exposure as the year advances. In addition, we like stocks that have significant exposure to the emerging markets and the US.
Andre Schuetz, analyst, UBS Deutschland AG, andre.schuetz@ubs.com I graduated from the Frankfurt School of Finance and Management in 2003. Prior to joining UBS, I worked as a fund manager for European and German equities for five years. My current responsibilities as an analyst match my enthusiasm for equity markets perfectly. Yours, Andre Schuetz
Most Preferred Ahold Allianz Anheuser-Busch InBev ASML Bayer BNP Paribas Danone EADS Gerresheimer Henkel Lanxess LVMH Moet Hennessy Louis Vuitton SA Reed Elsevier NV Safran SA SAP AG Technip Unibail-Rodamco Vinci Volkswagen Preference Source: UBS EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR
Least Preferred BBVA Carrefour Edenred Peugeot SA RWE Salzgitter AG ThyssenKrupp EUR EUR EUR EUR EUR EUR EUR
UBS Equity Compass
Region
Germany
Strategy German companies are feeling the effects of a slowdown in global manufacturing activity. Leading German business indicators have weakened in recent weeks. However, we still think that global economic activity will improve in the second half of the year. This should also support the earnings dynamics of export-oriented German companies towards year-end. The domestic economy continues to recover on the back of a healthy labor market. In addition, financing costs remain low for companies. Our positioning within the region We like stocks with defensive business models and German real estate stocks. As we expect overall economic growth to improve moderately in 2013, it will make sense to selectively add cyclical stocks. Investors should focus on companies with high revenues in emerging markets, the US and Germany. Until mid-March, there were hopes that German equities good start into the year might signal a period of sustained strength. However, as debt crisis uncertainties re-emerged, and various economic indicators such as the Ifo index took a breather in March, stock prices started to tumble. The performance of the DAX index for 2013 turned negative in midApril, when rumors about a potential downgrade of Germanys credit rating further added to uncertainty. Meanwhile, the German MDAX mid-cap index remains in positive territory. In an uncertain environment, and as economic growth has remained weak so far, setbacks in stock prices remain possible. That said, we continue to like German companies with more defensive business models, such as Fielmann, Fresenius SE, Gerresheimer and Linde. Among the defensive names, we also have a positive view on highquality dividend stocks and German real estate companies. In our view the German real estate market remains healthy, with only minor local price distortions. As several real estate companies have solid cash flows and attractive dividend yields, this should support the prospects for their stocks. In our view, the German economy and stock market are in solid condition. We continue to expect economic activity in Germany to improve further over the course of the year. Hence, we recommend a selective addition of cyclical stocks. We specifically prefer those that generate a large amount of their revenues in economically stronger regions such as the US, emerging markets and Germany. Although we do not have an explicit preference for German mid-cap companies, they should also be considered in this context. They are often highly geared to global growth markets and hold global (niche) market leadership positions. In our view, both of these factors should support growth for mid caps in an improving environment.
Andre Schuetz, analyst, UBS Deutschland AG, andre.schuetz@ubs.com I graduated from the Frankfurt School of Finance and Management in 2003. Prior to joining UBS, I worked as a fund manager for European and German equities for five years. My current responsibilities as an analyst match my enthusiasm for equity markets perfectly. Yours, Andre Schuetz
Most Preferred Allianz Alstria Office BASF Bayer Deutsche Post Deutsche Wohnen AG EADS Fielmann AG Fresenius SE GEA Group Gerresheimer Henkel Hugo Boss Lanxess Linde SAP AG Volkswagen Preference Source: UBS EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR
Least Preferred RWE Salzgitter AG Symrise ThyssenKrupp EUR EUR EUR EUR
UBS Equity Compass
Region
United Kingdom
Strategy We maintain our neutral stance on UK equities. Realized earnings are no longer falling. The stabilization in the earnings dynamics is broadly based across sectors. And the recent weakness of the pound is supporting corporate earnings, as on aggregate UK companies generate over 70% of their earnings overseas. The P/E multiple of about 12x realized earnings is below that of global equities. However, UK shares have traded at a discount to global equities for most of the past ten years. Our positioning within the region Given the muted UK economy, we focus on companies offering stable earnings, a degree of self-help, or exposure to earnings from higher growth overseas economies. We favor stocks with sound fundamentals which benefit from pricing power, exposure to the US and emerging markets and high quality dividends. The UK market is the third best performing regional market this year, giving a 7% total return. The market peaked in mid March and has since corrected slightly. The mining sector has been a big driver of the sell off along with energy and financials. Mining continues to suffer from concerns around a slow down in Chinese growth and its long term transition from an infrastructure to a consumer driven economy. Financials meanwhile took a dip on concerns around Cyprus, and also on weaker results due to exceptional items. We do not expect the scale of the recent underperformance of these sectors to continue at the same pace. We remain neutral on UK equities within a global equity moderate overweight. The valuation of 11.7x P/E 2013 remains attractive versus other equity regions, but based on consensus estimates the UK also offers the lowest earnings growth expectations at 5% this year. We expect UK companies with a high exposure to the US and emerging markets to continue to outperform the wider UK market given the higher economic growth in those regions, which translates into higher earnings growth. The weak pound currently is useful but not the main driver to this investment strategy of tapping into higher growth from companies with overseas exposure. Examples of stocks with high US and emerging markets exposure include Ashtead, BAT, Unilever, HSBC and SABMiller. We have seen a strong relative performance of high quality dividends in the past month, and we expect this to continue, particularly in light of the recent reduction in government bond yields. The re-rating of the rest of the equity market leaves quality stocks looking less expensive on a relative basis than they were, giving us continuing confidence in our existing high quality dividend strategy. BAT, Centrica, HSBC, and GlaxoSmithKline.
Caroline Winckles, CFA, analyst, UBS AG caroline.winckles@ubs.com I am an equity analyst specializing in UK equities, and am based in London. I have a background as a UK consumer analyst and prior to joining UBS in 2004 I was a fund analyst. I am a graduate of the University of Oxford, a CFA charterholder, and hold both the FPC and the IMC. Yours, Caroline Winckles
Most Preferred Ashtead Group AstraZeneca Barclays BAT UK BHP Billiton Plc BP Centrica GlaxoSmithKline HSBC Lloyds Banking Group Next Reed Elsevier plc Rio Tinto Plc Royal Dutch Shell RSA Insurance Group SABMiller Unilever Plc Vodafone Group Whitbread Source: UBS GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP
Least Preferred
UBS Equity Compass
Region
United States
Strategy We prefer US shares to other equity markets. The US economy is forecast to expand at a solid pace, although the strong economic momentum of the first quarter is unlikely to last in coming months. Wage pressure remains muted, as the labor market recovers only gradually. By keeping costs under control, firms are forecast to keep margins at historically high levels in 2013. We continue to forecast solid earnings growth of 57% for 2013, mainly thanks to robust revenue growth. Our positioning within the region We like companies that are returning their cash to shareholders via share buybacks and/or dividends. From a sector point of view, we recommend taking a more cyclical stance within the US equity market, as we believe that the economic environment is improving. We expect cyclical sectors to rebound as earnings stabilize and risk appetite increases. We like the information technology, industrials and consumer discretionary sectors. US equities remain one of the strongest markets year to date. One would assume that in such a rising market the cyclical sectors would outperform the defensives. This has not been the case, which is unusual. The best performing sectors have been healthcare, consumer staples and utilities, all of which are by nature low growth and low beta. An explanation for the bizarre goings-on can be found in the underperformance of the cyclical sectors, which were hurt by the tail risks coming from Europe and, to a lesser extent, China. What does this mean for investors? We believe that valuations for the cyclical sectors are very attractive compared to the defensives, and we prefer cyclical end markets with a domestic focus. We favor the consumer discretionary and industrials sectors. Though materials seems to have lost some steam given the muted growth in China, we suggest maintaining a neutral stance on this sector. We still like the technology theme. We believe the US technology sector is trading at an unjustified discount to the broader markets despite its robust growth. Earnings, in our view, will rise faster than in the market as a whole over the next few years due to secular factors (mobility, cloud computing, online advertising), exposure to fast-growing emerging markets and pent-up enterprise demand. Companies with a high exposure to the challenging PC market represent only 15% of the sectors market value. The potential sequester spending cuts are likely to have a notable impact on the US defense industry, and we believe that this could mark a secular decline in government defense spending. We therefore have a rather negative view on Northrop Grumman. The company has strong exposure to the declining US budget and potential sequestration. We have published a specific defense note with the title: Defense: Current defense cuts, the tip of the iceberg. We recommend avoiding the sector and mention 11 stocks which we expect to underperform the broader market.
Stefanie Scholtysik, analyst, UBS AG stefanie.scholtysik@ubs.com Markets have always fascinated me. Thats why I have never regretted studying finance. I have been working as a financial analyst for almost twelve years now and I still enjoy finding the best undervalued and sustainable investment ideas for our clients. Yours, Stefanie Scholtysik
Most Preferred Accenture Ltd. Adobe Systems Inc. Anadarko Petroleum Corp. Bank of America Celgene Citigroup Colgate-Palmolive Danaher Corporation Du Pont eBay ExxonMobil Corp. Gilead Sciences Honeywell Int. IBM Corp. Ingersoll-Rand Co. JP Morgan Chase & Co Merck & Co. Philip Morris International PPG Industries, Inc. Travelers Tupperwarebrands Union Pacific United Technologies Corp. Urban Outfitters Inc. Williams-Sonoma, Inc. Source: UBS USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD
Least Preferred ConocoPhillips Northrop Grumman Windstream Corp. USD USD USD
UBS Equity Compass
Region
Asia
The Asia ex-Japan equity market has underperformed the global markets consistently on a year-to-date basis, while Japanese equities have extended the outperformance that began in late March in USD terms in both cases. We have downgraded Chinese equities to neutral and upgraded India to Most Preferred within our Asia ex-Japan strategy. The outperformance of our Asian quality high-yield stocks theme has exceeded expectations. The Asia ex-Japan equity market has underperformed the global markets consistently on a year-to-date basis, while Japanese equities have extended the outperformance that began in late March in USD terms in both cases. After the 4% EPS growth in 2012, the consensus earnings forecast for Asia ex-Japan is now for 18% growth, which could have downside risk. But at the same time, the regions valuation is also at a discount to the developed market. We downgraded Chinese equities to neutral within our Asia ex-Japan strategy in early April, as the policy outlook is becoming more uncertain. The subsequent release of disappointing macro data for the first quarter and March did not help the market either. Within the Chinese market, we prefer to switch out of deep cyclical sectors with poor fundamentals (industrials, small banks and developers) into structural-trend beneficiaries (technology, natural gas). In turn, we upgraded India to Most Preferred in light of its more benign macroeconomic outlook and the central banks greater capacity to ease rates due to subdued inflation. Although the state of Indian politics matters, we are hopeful about the glimmers of stability in investment. We expect the recent improvement in corporate profit margins to continue. Within India, we prefer cyclical and investment-related names. Following the downgrade on Chinese equities, we are closing our China value focus theme, which has performed well and outperformed the Chinese equity benchmark year-to-date. The theme was based on our expectations that a group of oversold Chinese companies would offer earnings-upgrade potential on the back of the Chinese economys moderate recovery and rebound in corporate earnings estimates. The outperformance of our Asian quality high-yield stocks theme has exceeded expectations. While the inflation outlook remains benign, and the rate cycle has yet to turn, we remain constructive on quality highyield stocks on a six-month view. By quality we mean high-dividendyield companies with a historic track record of delivering successive annual dividend growth over three to five years, a historical period that spans challenging economic conditions.
Patrick Ho, CFA, analyst, UBS AG patrick-ww.ho@ubs.com I am the CIO WM Head of Hong Kong Equities Research and the co ordinator for Asia Pacific equity research products. Prior to joining UBS, I was an Asian banking and insurance analyst at a US investment bank. I also worked as a lecturer at a Hong Kong university before entering the investment banking industry. Yours, Patrick Ho
UBS Equity Compass Asia


Looking for improvement and growth
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Attractive value in Chinese financials
Robust growth in Indonesia
Laggards in Japan
Links to full reports on the research portal
Equities: Japanese exporters supported by weaker yen, published April 22, 2013 Emerging market equities: Global giants rising in emerging markets, published January 21, 2013 Asia Pacific equities: Winners from North-South ASEAN integration Update, published January 15, 2013 published January 4, 2013 Asia Pacific equities: Asian healthcare Caring for half the world, Chinese equities: China demographic changes: Entering a new regime, published November 22, 2012
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10
UBS Equity Compass
Region
Emerging markets
Strategy We have a neutral position on emerging market shares relative to global equities. Economic data in key countries have been more mixed recently. The regions earnings dynamics lag those of developed markets especially the US and Japan. This, coupled with the recent fall in commodity prices, suggests that a strong recovery in corporate earnings is less likely in the near term. The valuation discount of about 25% to global equities is slightly higher than over the last ten years, and balances the weak earnings momentum. Our positioning within the region Within emerging markets, we see three main drivers: first, despite the current softer patch, a gradual pick up in growth, supporting some of the higher-beta markets (like Russia, South Korea and Brazil); second, a focus on local recovery stories (like Brazil and India); and third, some rotation away from those markets that have done exceptionally well over the past year toward markets that have lagged and started the year under-owned and out of favor (like Russia and Brazil). In the case of South Africa, valuations are on the high side and we see limited potential for earnings growth. We expect some rotation out of Turkey after a strong run, and valuations have become more demanding. Real GDP growth in the emerging markets (EM) is expected to accelerate moderately in 2013 to above 5%. Recent economic data has been mixed, however, suggesting that the emerging economies are currently in a softer patch. Chinas first quarter GDP numbers, released in midApril, disappointed. The earnings dynamics in the emerging markets are currently trailing those of developed markets. This is especially the case relative to the US. Lower commodity prices are weighing on the materials and energy sectors. The weaker yen has negatively affected the competitiveness of Korean and Taiwanese exporters. But there are also silver linings. The weakness in earnings is balanced by a relatively attractive valuation compared to global equities. The discount of emerging market equities compared to global equities is now slightly higher than it has been over the last 10 years. In our base case, we see the P/E multiple of the MSCI EM Index close to current levels at around 11.5x trailing (i.e. realized) earnings over the next six months. Over the next 12 months, we expect EM earnings growth of around 11% (below the latest consensus estimate of 14%).
costa.vayenas@ubs.com, analyst, UBS AG
Our Global Emerging Markets Equity Preference List contains our best investment opportunities from Africa, Asia ex-Japan, Eastern Europe, Latin America, and the Middle East as identified by our sector and regional analysts. These companies are expected to outperform (Most Preferred) or underperform (Least Preferred) the benchmark. More details on individual stock preferences can be obtained via UBS Quotes or the respective analyst.
Most Preferred Asia ex-Japan Bharat Heavy Elec. Ltd Brilliance China China Construction Bank China Overseas Land Hana Financial Hutchison Whampoa Indofood S.M. Keppel Corporation Mediatek OCBC Samsung Electronics Emerging Europe, Middle East & Africa Gazprom Impala Platinum Naspers Polyus Gold International Severstal Teva Pharmaceuticals ADR Latin America AmBev Cemex FIBRA MACQUARIE G.F. Banorte GENOMMA LAB Grupo Televisa Mexichem OHL MEXICO Petrobras Pref ADR BRL MXN MXN MXN MXN MXN MXN MXN USD USD ZAR ZAR GBP USD USD INR HKD HKD HKD KRW HKD IDR SGD TWD SGD KRW
Least Preferred Asia ex-Japan
Emerging Europe, Middle East & Africa CEZ, a.s. CZK
Latin America GF Inbursa Industrias CH MXN MXN
Corporacion Inmobiliaria Vesta MXN
Potential trading restrictions may be applied to BHEL and Mediatek Source: UBS
11
UBS Equity Compass
Sector
Automobiles
Strategy Global auto demand is likely to remain solid this year. With US as well as emerging market growth expected to be strong, and expansion in Europe relatively weak, we believe balanced geographical exposure is a key success factor. The premium segment should continue to benefit from these regional trends, although mass market producers might be more affected by challenging macro trends in some regions. While the sector valuation is inexpensive, earnings volatility is generally higher than for other sectors. Our positioning within the sector In light of the significant currency impact benefiting Japanese stocks, as well as persistently strong volume and pricing pressure in Europe, including the formerly strong German market, we have removed most of the European auto stocks from our global list. We currently have a clear preference for Japanese names. The European auto market had another rough ride last month, with car sales down by around 10% year-to-date. The only major positive market was the UK, while Germany fell by as much as 17% year-on-year. This negatively affected European auto stocks, as this industry has a high level of fixed costs; the last thing the industry needs is a further drop in volume, combined with ongoing pricing pressure. Our recent field research at car dealers clearly confirmed that incentives are granted easily, indicating the strong pressure car companies face in Europe. Meanwhile, the US auto market has improved by more than 6% year-todate, with the US and European brands benefiting more than others. It seems that initial concerns about the negative impact of US tax hikes were overdone, and the US consumer still loves to buy a new car. However, the positives from the US did not result in good share price performance for either the European or the US auto names. On the contrary, the share prices of European auto names, even the ones with large US and emerging markets exposure, fell sharply. The real momentum currently lies with Japanese auto manufactures. Their competitive position has improved substantially thanks to the depreciation of around 30% in the Japanese yen versus other main currencies since fall 2012. Our recent talks with Toyota confirmed that currency gains will be largely used to bolster earnings growth. With the possibility of further yen weakening, there could be more upside. We still believe that premium and near-premium manufacturers with strong exposure to the Chinese and US markets are structurally better positioned than the European mass producers. However, in light of the strong currency impact, we have removed most of the European auto stocks from our global list, and currently have a clear preference for Japanese names.
Rolf Ganter, CFA, analyst, UBS AG rolf.ganter@ubs.com I have a masters degree in finance and started with UBS in 1999. I focus on the auto sector and several thematic research ideas. I also present the UBS economic and financial market outlook across Europe. Yours, Rolf Ganter
Most Preferred BMW Bridgestone Fiat Industrial Honda Motor Leoni MAN Toyota Motor Valeo Source: UBS EUR JPY EUR JPY EUR EUR JPY EUR
Least Preferred Autoliv Autoneum Faurecia Peugeot SA Rheinmetall USD CHF EUR EUR EUR
12
UBS Equity Compass
Sector
Consumer Discretionary
Strategy We upgrade consumer discretionary to overweight, as the sector should benefit from good consumer confidence. Revenue and earnings growth should be helped by improving unemployment trends and the positive wealth effect from stronger housing and equity markets in the US. Asian spending should fuel superior sector growth rates in the coming years and more than offset some weakness in Europe. The sector is trading at a premium valuation, which is justified by the superior growth outlook. Our positioning within the sector Within the consumer discretionary sector we are looking for companies that are growing their sales and also have the potential to boost margins. We recognize, however, that for many companies margins are already at record levels. We also prefer companies with good pricing power and positions in faster growing emerging markets or the US. Since the beginning of February, the luxury sector has been underperforming the consumer discretionary index. The reason for the underperformance is concern about the macro situation in China. The last watch export numbers for both Hong Kong and China were weak: mainland China was down 31% year over year in March, while Greater China was down for the 7th consecutive month. On the positive side, the data suggests that high end watches continue to do very well, while watches at lower price points are subdued to some extent. Both watch export numbers and LVMHs comments made at their last analyst conference call confirm that this negative trend is not stopping short of the luxury sector. Nevertheless, the most recent numbers for Hong Kong watch and jewelry retail sales paint a different picture in our view, as they were very promising and indicate that destocking is coming to an end. The numbers have been pretty strong and we expect a pickup soon. Furthermore, Richemont has released a positive profit warning, meaning that the company expects net profit to be up by 30% compared to last year, which is above market expectations of 25%. This is a relief, since the market was worried that Richemont and other luxury goods companies would not meet consensus expectations. The Baselworld watch and jewelry tradeshow will be held from April 25 until May 2. Around 50% of all watch orders for the year are placed at the Basel fair, making it an important event for the industry. Going forward, we believe that the industry has suffered too much since the beginning of the year, and companies with a certain edge, such as Richemont, The Swatch Group and LVMH, should continue to do well.
Overweight
Stefanie Scholtysik, analyst, UBS AG stefanie.scholtysik@ubs.com Markets have always fascinated me. Thats why I have never regretted studying finance. I have been working as a financial analyst for almost twelve years now and I still enjoy finding the best, undervalued and sustainable investment ideas for our clients. Yours, Stefanie Scholtysik
Most Preferred Amazon CarMax CBS Corp Compagnie Financiere Richemont SA Gap Honda Motor Inditex SA ITV plc LVMH Moet Hennessy Louis Vuitton SA McDonalds Corp. Next PPR SA Reed Elsevier plc The Swatch Grp Reg TJX Companies Tupperwarebrands Urban Outfitters Inc. Williams-Sonoma, Inc. Yoox Source: UBS USD USD USD CHF USD JPY EUR GBP EUR USD GBP EUR GBP CHF USD USD USD USD EUR
Least Preferred Edenred EUR
13
UBS Equity Compass
Sector
Consumer Staples
Strategy We reiterate our overweight on consumer staples, as the sector offers attractive growth prospects in the high single-digit percentages, primarily driven by emerging market growth. Companies in the sector generally have good visibility, along with relatively stable earnings and cash flows. They are also less impacted by economic cycles. This justifies the sectors premium valuation, in our view. With dividend growth among the highest across all sectors, consumer staples offer an attractive dividend yield. Our positioning within the sector It is impossible to be overweight in Japanese cheese producers, or underweight in Western European paper towel manufacturers there just arent any companies with such a narrow focus. Most companies worth investing in encompass several regions and/or categories. Thats why we screen companies using certain criteria pricing power, sales growth and a disciplined use of cash. Then, if a company matches our criteria, we select it, no matter on which exchange its shares trade. Consumer staples continues to be one of the best performing global sectors year-to-date. Since the publication of the first quarter numbers, though, the outperformance of the sector has been more muted - mainly due to weaker than expected sales figures for food producers. Nestls top line, for example, suffered from continued weakness in Asia, Oceania and Africa as well as a shortfall in Nestl Waters. Results in the coffee business also show signs of competition ramping up and increased pricing pressure due to the low coffee bean price. Nevertheless, we are confident that Nestles dominance of this category will endure. We think that the stocks long-term prospects remain intact, but we currently see more attractive investment opportunities within consumer staples elsewhere, for instance in Danone. The company actually reported results that were ahead of consensus expectations, mainly due to a spike in demand for baby milk in China, which compensated for the weak performance in Europe. In the beverages sector, beer brewer Anheuser-Busch InBev (ABI) has made progress on the planned Modelo merger. The U.S. Department of Justice recently announced that it has reached a settlement with ABI, and has given the green light for the merger to continue. ABI expects the deal to close in June, which will solidify the companys world-leading position in terms of market share and increase its exposure to high growth emerging markets such as Mexico. For a more detailed view of the beer industry, please take a look at our latest update on our thematic investment research Western Winners from Emerging Market Growth.
Overweight
Thomas Kruemmel, CFA, analyst, UBS AG thomas.kruemmel@ubs.com Michael Jermann, UBS AG michael-lorenz.jermann@ubs.com I have been a stock analyst and equity portfolio manager since 1991. After many years spent with Asian stocks in general and Japanese equities in particular, I took up covering global consumer staples stocks in early 2009. Yours, Thomas Kruemmel
Most Preferred Ahold Anheuser-Busch InBev Aryzta AG Beiersdorf Colgate-Palmolive Danone Diageo Kao Mondelez International PepsiCo Inc. Philip Morris International Reckitt Benckiser Unilever Plc Source: UBS EUR EUR CHF EUR USD EUR GBP JPY USD USD USD GBP GBP
Least Preferred Campbell Soup Company USD
14
UBS Equity Compass
Sector
Energy
Strategy We confirm our neutral view on global energy. The sector offers an attractive dividend yield, with good dividend cover and very solid balance sheets. However, we think the sector is undergoing a period of change, due to rapidly expanding unconventional oil and gas activities and growth in renewable energy. We see a risk to profitability and free cash flow generation. Energy is trading at a discount to the market and offers defensive qualities, but growth is below average. Our positioning within the sector Energy services is our preferred sub-sector globally, as it benefits from rising capital expenditure. We also find attractive risk-reward profiles among European majors with generous, high-quality dividend yields. We highlight natural gas opportunities in our Natural gas growth gainers theme.
Most Preferred
Neutral
Rudolf Leemann, analyst, UBS AG rudolf.leemann@ubs.com I have been covering stocks since 1998 across various sectors, regions and company sizes. The energy sector has been my focus since 2005. Yours, Rudolf Leemann
Least Preferred GBP USD USD GBP HKD USD USD USD USD GBP USD EUR CHF Chesapeake Energy Corp. ConocoPhillips SandRidge Energy Inc USD USD USD
The relatively high dividend yield has been the only compensation for investors year-to-date, as prices have been flat (MSCI Energy in USD). This makes energy a laggard, and the outlook for the coming first quarter earnings season suggests there is little prospect of increased earnings momentum, except in the case of energy services. However, the rest of the sector has a fairly low valuation. Investments in new projects are a positive for energy services providers. Solid order intake during 2012 should now translate into higher activity levels in 2013 and 2014, leaving more pricing power for new orders yet to be booked. We like European majors, despite the fact that their capital spending is climbing while production volumes stagnate. They pay attractive dividend yields that are higher than those of their US peers, but their valuations are lower. That said, we think the support from strong US refining margins on the back of a wide WTI Brent price differential is likely to persist, helping US majors and refiners. Meanwhile, the refining market globally remains well supplied, leaving margin risk for refiners outside North America. The US natural gas market is very well supplied, which is good news for consumers as described in our Natural gas growth gainers theme but less so for producers. We keep a limited exposure to these companies, with a preference in the US for producers that have a higher share of oil than gas production. For a view on the long-term energy landscape, please refer to our 30-page UBS Research Focus, Investing in the future with Energy, published on 29 August 2012.
AMEC Anadarko Petroleum Corp. Apache Corporation BP China Shenhua Energy Devon Energy Corporation Gazprom Halliburton Co. Petrobras Pref ADR Royal Dutch Shell Schlumberger Ltd. TOTAL Transocean Ltd. Source: UBS
Weatherford International Ltd. CHF
15
UBS Equity Compass
Sector
Financials
Strategy We reiterate our neutral view on financials, as we think the sector currently offers both pros and cons for investors. On the one hand, we expect upside from further restructuring, cost-cutting and rising capital returns. On the other, regulatory risk remains high, an escalation of the European sovereign crisis is still a key risk, and the low yield environment remains an issue for the profitability of banks and insurers. Financials are geared to macro factors, and better growth prospects may support the sector. Our positioning within the sector Banks and insurers, the two sub-sectors within financials, face different sets of challenges. Against the backdrop of high loan loss provisions and a lack of credit growth in Europe, we remain cautious on the European banks and prefer peers, particularly in the US. Within the insurance sub-sector, the dominant theme is low interest rates. As long as these stay in place, we remain negative on life insurers and prefer non-life and reinsurance names. The ongoing reporting season confirms the relative health of US banks, which are benefiting from economic growth driven by an improving real estate sector. Also, credit quality is still improving there, and balance sheet positions are generally sound. The increased size of customer deposits and assets under management speak in favor of the wealth management segment, which we currently like. For a detailed analysis of the segment, please refer to our report, Wealth managers, winners in a changing environment, published April 5, 2013. Conversely, growth and earnings prospects remain subdued in Europe, where non-performing loans remain elevated, curbing banks profitability. We continue to see a funding-driven incentive to reduce the size of balance sheets, as we still think that the leverage ratios (assets-toequity and assets-to-GDP) of the European banking system are too high. Looking at the year-to-date price performance of the major insurance industry segments, we can see which segments have been hit hardest by the industrys key themes, namely depressed government bond yields and corporate spreads that weigh on investment incomes. While the average price return for the sector as a whole was 7% at the time of writing, non-life and re-insurers have shown a higher return at 12%, reflecting a solid pricing environment and less exposure to low interest rates. We expect this to translate into continued earnings improvement, and therefore prefer both segments. By contrast life insurers and multiliners have seen performance of just 6% and 4% respectively, due to their substantial exposure to low rates. This is the key reason why we are currently avoiding them - particularly US life names. These are now suffering as a result of return guarantees given to previous large policyholders in past variable annuity business.
Fabio Trussardi, analyst, UBS AG fabio.trussardi@ubs.com Sebastian Vogel, analyst, UBS AG sebastian.vogel@ubs.com
Neutral
I am in charge of financial sector analysis. Previously, I was a fund manager at a leading Italian investment fund. I am a chartered public accountant and have a degree in economics from Bocconi University in Milan. Yours, Fabio Trussardi
After joining UBS CIO WM research in 2010, I gained experience both in equities and on the government bond research side, carrying out top-down as well as bottom-up analysis. This should be particularly valuable in the analysis of insurance companies, which are, among other factors, heavily impacted by macro trends and their bond portfolios. Yours, Sebastian Vogel
Most Preferred Allianz Aon Corp Aviva Axa Bloise Bank of America BNP Paribas China Pacific Insurance - H Citigroup CS Group DNB Bank E*trade Financial Corp First Republic Bank G.F. Banorte HSBC JP Morgan Chase & Co Julius Baer Group Munich Re Old Mutual Royal Bank Of Canada Scor Swiss Re TD Ameritrade Travelers United Overseas Bank Virtus Investment Partners EUR USD GBP EUR CHF USD EUR HKD USD CHF NOK USD USD MXN GBP USD CHF EUR GBP CAD EUR CHF USD USD SGD USD
Least Preferred Agricultural Bank of China Bank of China Bank of India BBVA CNP Assurances Commonwealth Bank of Australia Crdit Agricole Deutsche Bank HKD HKD INR EUR EUR AUD EUR EUR
Potential trading restrictions may be applied to Bank of India Source: UBS

16
UBS Equity Compass
Sector
Healthcare
Strategy We reiterate our overweight on global healthcare, as the outlook remains generally positive. Sector companies offer good returns on capital, strong balance sheets, and a superior dividend growth outlook with attractive yields. We continue to like the sectors defensive nature and high-quality earnings, which are also supported by increased cost control on the part of managements. With relatively high exposure to emerging markets and the passing of the patent cliff, earnings growth and visibility are improving. Our positioning within the sector Among large caps, we prefer European big pharma names. These companies are just about to see their patent cliff pass, have diversified revenues into more sustainable revenue growth drivers in the past few years, and enjoy valuations that still look attractive. We are also interested in growth niches outside the large cap pharmaceutical space. This includes obesity, a disease with a growing prevalence, and companies exposed to aging and anti-aging, which is a trend enjoying above-average growth. Over recent years, most pharmaceutical companies particularly European large caps have worked their way through the patent cliff, increasing visibility on future growth, margins and cash flows. With the patent cliff passing this year for these companies, growth is set to accelerate in 2014. In our view, this is not yet properly reflected in the sectors valuation. Current share prices still assume that the industrys terminal growth is significantly below global population growth an assumption we do not share. In addition, the composition of revenues has also changed over the past few years. About 50% of European large caps revenues now come from sustainable revenue sources, such as consumer health, vaccines and emerging markets. Visibility for these business units is higher compared with the blockbuster pharma model. As stock markets pay up for higher visibility see for instance the relatively high valuation multiple for the consumer staples sector the pharma sectors valuation looks all the more attractive. Aside from core holdings in large cap pharma companies, we also recommend building up positions in growth areas of the healthcare sector. To this end, we analyze lifestyles that are being broadly and rapidly adopted and are expected to persist. Investing in such lifestyles should deliver above average-returns. Obesity: the trend towards eating more energy-rich food, combined with insufficient physical activity, is increasing the occurrence of obesity. Numbers and projections are alarming. Aging: eternal youth has always been sought after. Today, in many countries, we live to over 80 years of age on average. Nevertheless, the dream of eternal youth remains. Please see our Lifestyles & trends investment theme.
Overweight
Stefan Schneider, CFA, analyst, UBS AG stefan-za.schneider@ubs.com I hold a PhD from the University of Zurich and am a CFA charterholder. Ihave been analyzing stocks for more than a decade, but I have also gathered industry experience. My education and experience have enabled me to become CIO WM European Head of Equity Research. Yours, Stefan Schneider
Most Preferred Astellas Pharma Celgene Coloplast B Fresenius SE Gilead Sciences GlaxoSmithKline Merck & Co. Novartis Novo Nordisk Pfizer Inc. Roche Sanofi Source: UBS JPY USD DKK EUR USD GBP USD CHF DKK USD CHF EUR
Least Preferred Bachem CHF
17
UBS Equity Compass
Sector
Industrials
Strategy We have a neutral view on global industrials. While leading indicators have generally stabilized in the last few months and should further recover, earnings expectations are too high, and some downward revisions are likely. There is a risk to margins from muted economic activity and higher competition. However, a better macro environment could lessen market headwinds and improve business investment. Meanwhile, balance sheets and cash flows remain strong across the sector. Our positioning within the sector We see no strong drivers for sector performance at present as leading indicators have weakened recently. We recommend sticking to highquality names in the US, and to European companies with sustainable dividends and/or exposure to emerging markets. For investors interested in Asia, we have now added Japanese industrials (Keyence and SMC). Over the last few weeks, the industrials sector has lost a bit of steam and has been underperforming the broader equity market. The reasons are simple: leading economic indicators have lost momentum with Europe faltering yet again and China being currently weaker than expected. This years first quarter earnings season will be heavily impacted by calendar effects (e.g. early Easter, and fewer working days in 2013 after the leap year in 2012). This alone could lead to a negative sales impact of up to 2%. From a regional demand perspective, we expect North America to be the only bright spot, while Europe remains weak for most companies (France is still declining sequentially, and Holland is also sluggish). Although several companies expect an improvement in China, we have not yet seen any evidence of a positive inflection point. Therefore, we cannot rule out disappointments from companies with high exposure to China. In terms of end-markets, we expect the strongest to be the US residential construction market, which is coming off a low base after several years in the doldrums. The weakest, at least in terms of orders, is likely to be mining equipment. Since our last update, we have changed several stock selections. In particular, we have included two Japanese stocks (Keyence and SMC) on the Most Preferred list. Both benefit from a structural trend of increasing automation in emerging markets and of course the weaker yen making them more competitive. By contrast, we have added two Swiss stocks, Belimo and Kaba, to the Least Preferred list. Despite Belimos strong business model, we do not like the stocks high valuation. Kaba is losing market share, and we do not expect a quick sales rebound. On the positive side, we keep our preference for high-quality names in the US and for European stocks with a global focus. In the US, we like names such as United Technologies and Danaher. In Europe, our favorites are Experian and Safran.
Neutral
Alexander Stiehler, CFA, analyst, UBS AG alexander.stiehler@ubs.com After graduating in economics in 2006, I started my career as an analyst for renewable energy stocks (solar, wind and biofuels). In early 2009, I joined UBS and now cover industrials and renewables. Yours, Alexander Stiehler
Most Preferred Arbonia-Forster Bilfinger Berger Boeing Co. Daetwyler Danaher Corporation EADS Experian Flughafen Zurich AG GEA Group Georg Fischer Honeywell Int. Ingersoll-Rand Co. Keyence MAN Rockwell Collins Inc. Safran SA Schweiter Technologies Siemens SMC Triumph Group Union Pacific United Continental United Technologies Corp. Vinci Source: UBS CHF EUR USD CHF USD EUR GBP CHF EUR CHF USD USD JPY EUR USD EUR CHF EUR JPY USD USD USD USD EUR
Least Preferred Adecco Atlas Copco A Belimo Kaba Metso Northrop Grumman Panalpina Rolls Royce Vestas Wind Systems A/S CHF SEK CHF CHF EUR USD CHF GBP DKK
18
UBS Equity Compass
Sector
Information Technology
Strategy We keep our overweight on global IT, as we expect the sector to benefit from persistently robust end-demand, especially in the US and emerging markets, and resilient consumer spending. We think the sectors valuation looks very attractive: it is in line with the global market and shows a high discount to historic multiples. Meanwhile, longterm growth trends are intact and superior to those in other sectors. In addition, balance sheets and cash flow generation remain very strong, and dividend growth is high. Our positioning within the sector We stay defensive in our stock selection and prefer companies with strong growth visibility or market share gains. We recommend that investors stay selective on the smart mobility industry, as changing market dynamics present both opportunities and threats.
Most Preferred
Overweight
Sundeep Gantori, CFA, analyst, UBS AG sundeep.gantori@ubs.com I started my career in early 2006 as an IT sector analyst. Since then my coverage has expanded to cover the Taiwanese market and several thematic investment ideas. I am a CFA and CAIA charter-holder and studied commerce at university. Yours, Sundeep Gantori
Least Preferred USD USD TWD USD SEK USD TWD TWD USD KRW EUR TWD USD ARM Holdings Plc Cheng Uei Citrix Systems Inc. GBP TWD USD
Recent earnings results pointed to mixed enterprise IT spending trends. Companies generally cited deal closure risks as the main reason for weakness. It could be argued that the March quarter is a low season for enterprise IT spending; nevertheless, this is not a healthy development for the overall sector. That said, we still anticipate a shift in enterprise IT expenditure in 2013 away from hardware such as PCs and towards software-based applications and IT services. Global IT services expenditure was muted in 2012, as enterprises generally scaled back their discretionary services spending plans. However, we see early signs of a pick-up in 2013, as highlighted by better-than-expected services bookings in the recently concluded earnings season. Gartner, an industry research firm, also recently confirmed the trend indicating that global IT services spending will grow by 5.2% year-on-year in 2013. This is compared with only 1.8% year-on-year in 2012. The firm also expects global software spending growth to accelerate from 3.3% in 2012 to 6.4% in 2013. We therefore recently increased our preference for defensive software and services stocks. We recommend that investors stay selective on the smart mobility industry, as changing market dynamics present both opportunities and threats. We expect growth in 2013 to be driven by large-screen smartphones and low-cost devices. In this case, only companies with strong exposure to these segments are likely to fare well. One such company is Samsung Electronics, which reported robust first-quarter results. The availability of its new flagship smartphone in the second quarter should sustain the companys strong growth momentum. Additionally, we believe that companies exposed to emerging market smart devices should also report strong growth rates in 2013.
Accenture Ltd. Adobe Systems Inc. Asustek Computer eBay Ericsson IBM Corp. Inotera Memories Mediatek Qualcomm Samsung Electronics SAP AG Taiwan Semiconductor Mfg. VMWare
Potential trading restrictions may be applied to Mediatek, Asustek, Taiwan Semiconductor, Cheng Uei and Inotera Source: UBS
19
UBS Equity Compass
Sector
Materials
Strategy Materials have benefited from strong economic activity in emerging markets. While persistently robust growth in China should continue to support sector companies, we think the commodity supercycle is largely over. While higher operating costs, taxation and royalties have hit margins, companies have placed a stronger focus on cost-cutting and have reduced capital spending plans. However, we have concerns that a better economic environment may not translate into higher profitability, and we keep our neutral view. Our positioning within the sector We like selective miners with low costs and significant self-help measures, and also have a preference for defensive chemicals companies. Given the likely expansionary monetary policy and weak currency in Japan, there is a special emphasis on Japanese materials companies.
Most Preferred
Neutral
Daniel Koenig, analyst, UBS AG daniel.koenig@ubs.com I studied economics at the University of Zurich and started as an equities analyst in the late 1980s, looking at Australia, the Far East and South Africa. I have seen volatile markets over the years, but I continue to think good fundamentals should prevail. Yours, Daniel Koenig
Least Preferred USD JPY EUR GBP EUR MXN GBP CAD GBP JPY JPY GBP GBP USD USD JPY JPY JPY GBP USD Angang Steel CRH Gurit K+S Novozymes A/S Salzgitter AG ThyssenKrupp HKD GBP CHF EUR DKK EUR EUR
The recovery in the fixed asset side of the Chinese economy has lost some speed. Reflecting this development, first-quarter GDP growth in China was below expectations, coming in at 7.7%. Base metals prices corrected as a result. On the positive side, inflation moved down to 2.1% in March, reducing the fears of an early tightening. In the developed world, the most recent US non-farm payroll data were weaker than expected. The first-quarter earnings season is likely to be difficult, with weak commodity prices and a difficult economic environment expected to lead to weaker results. Companies exposed to the European economies could suffer in particular. Outlook statements are likely to be inconclusive, given the volatility of commodity prices and a difficult economic environment. On the positive side, certain end-markets of the chemicals industry, such as the agricultural sector, remain in good shape. Given the pressure on the bottom line in the mining industry, companies should pay additional attention to capital expenditure. We think that capital spending has peaked, and new managers at the top of companies are likely to cancel projects. Free cash flow is expected to be negative. On the positive side, cement companies should benefit from improved US housing and weak input prices. We think there should be a greater focus on Japan, as the weaker currency has significantly reduced the pressure on margins and profitability. The return on equity of all materials companies in Japan has been under significant pressure in the past years, as the yen has been very strong. Another positive is that Japanese companies are at a high level technologically.
Agnico-Eagle Mines Ltd. Asahi Kasei Bayer BHP Billiton Plc Brenntag Cemex Elementis First Majestic Silver Corp. Hochschild Mining Nippon Steel Nitto Denko Petra Diamonds Polyus Gold International PPG Industries, Inc. Severstal Shin-Etsu Chemical Sumitomo Chemical Toray Industries Xstrata Plc Yamana Gold Inc. Source: UBS
Dominion Diamond Corporation CAD
20
UBS Equity Compass
Sector
Real Estate
Strategy Global listed real estate continues to deliver solid returns. Financing conditions are attractive. Rising dividends, portfolio optimizations and cost-cutting are supporting earnings. Solid companies trading at a premium can make accretive acquisitions. However, we now expect a more range-bound market. Our positioning within the sector We prefer the US and Asia over UK on valuation concerns and over continental Europe, where market fundamentals are still weak. The Chinese, Hong Kong and Singaporean governments continue to fight overheating residential property markets, which should mainly affect selected residential developers and less so landlords. We are watching the strong outperformance of Japanese Real Estate Investment Trusts (JREITs) closely, but still expect ongoing support from the Bank of Japan (BoJ) and maintain a preference here. For our global real estate universe to maintain the current strong upside trend, we would need further strong positive economic surprises. Yet the economic recovery remains weak overall, and our global listed real estate universe has already priced in a good portion of economic optimism. We are observing greater divergence between the strong performance of listed real estate and the rather weak global economy; from a valuation point of view, this makes further strong performance questionable. Our base case assumes moderate but positive economic growth in the US and selected growth opportunities in Asia for real estate investments, while the ongoing political and economic uncertainty should remain a burden for Europe and the UK. The overall disappointing economic data from March could mark a temporary end of the phase of strongly rising real estate equity values that began last June. Also, the end of the gradual upward trend in yields on longer-dated US Treasuries, which began last summer, supports the argument that optimism on growth could diminish, and the strong rise in real estate equities could lose some traction. In addition, the recent debate about the possible withdrawal of monetary stimulus could fade. While stimulus is supportive for asset values, which could profit from further capitalization rate compression, it also has a negative effect on future expected rental revenues from properties. Consequently, until the global economy delivers better economic data, we anticipate a more range-bound real estate market for the coming few months.
Thomas Veraguth, analyst, UBS AG thomas.veraguth@ubs.com I studied economics at the University of St. Gallen and have been analyzing global real estate markets at WMR since 2009. Before joining UBS, I worked as a portfolio manager with an independent asset manager and as an industry analyst at another global bank. Yours, Thomas Veraguth
Most Preferred Activia Properties Bekasi Fajar Industrial Estate British Land Camden Properties CapitaLand Ltd. CapitaMall Trust CDL Hospitality Trust Cheung Kong Ciputra Development Country Garden Flughafen Zurich AG Hammerson Hang Lung Properties Hufvudstaden Kenedix Realty Kilroy Realty Mah Sing Mitsubishi Estate Mitsui Fudosan Mobimo Holding Phoenix Mills Pruksa Real Estate Shimao Property Holdings Swire Properties Tanger Factory Outlets The Link REIT Unibail-Rodamco JPY IDR GBP USD SGD SGD SGD HKD IDR CNY CHF GBP HKD SEK JPY USD MYR JPY JPY CHF INR THB CNY HKD USD HKD EUR American Capital Agency Corp USD
Least Preferred City Developments Corio NV Digital Realty Trust Gecina Intershop ODH PSP Swiss Property SGD EUR USD EUR CHF CHF CHF
Two Harbors Investment Corp USD Potential trading restrictions may be applied to Phoenix Mills Source: UBS
21
UBS Equity Compass
Sector
Telecoms
Strategy We reiterate our underweight on global telecoms. The sectors main attraction remains the high dividend yield. However, revenues are declining, and ongoing high capital expenditure is reducing free cash flows, potentially resulting in lower dividends. Companies in emerging markets have better growth prospects, as higher smartphone penetration should boost data usage growth, but even here margins may have peaked. In the US, we have increased concerns regarding the competitive environment, handset subsidies, and pricing pressure. Our positioning within the sector We have a preference for Asian operators and, to some extent, those exposed to emerging markets, as we believe that they are well positioned to benefit from rising smartphone penetration. We suggest taking profit on the US Bells and avoiding European operators. We remain cautious on the US Bells. Valuation levels remain elevated in both absolute and relative terms. We expect competition in wireless to heat up in the second half of the year, which should have an adverse impact on the Bells. Deutsche Telekom has moved another step closer to merging T-Mobile USA with MetroPCS, which would strengthen the groups competitive position. Likewise, the pressure from Sprint is likely to increase, regardless of which company it finally partners with. Since all operators are rolling out 4G networks and might also need to increase capacity, we see wireless tower companies as a compelling way to play the growth in wireless data in the US. Some of the Asian telecom companies and, to a certain extent, operators with exposure to emerging markets, are attractive in our view. We believe sales growth will be driven partly by subscriber growth and partly by rising penetration levels with data products. Smartphone prices are trending downwards. This should help to increase smart phone penetration levels. Share prices of European operators have recently benefited from discussions around M&A options and a potential softening of regulation. However, the operating environment remains difficult, with competition still leading to downward pressure on prices. In the absence of cost-cutting, this is resulting in margin pressure. At the same time, rising demand for mobile data and the trend towards fiber are generating upward pressure on capex. We expect share prices to remain volatile, and would continue to avoid the sector.
Underweight
Marcus Baeumer, analyst, UBS AG marcus.baeumer@ubs.com I started to work in equity research covering telecoms in the mid-90s and joined UBS in 2001. While my sector responsibilities evolved over time, over time, an emphasis on telecoms has always remained. Yours, Marcus Baeumer
Most Preferred Adv Info Services CenturyLink Far Eastone Telecom SBA Communications Singapore Telecom SK Telecom Telenor Time Warner Telecom THB USD TWD USD SGD KRW NOK USD
Least Preferred Belgacom Bouygues Deutsche Telekom France Telecom TDC Windstream Corp. EUR EUR EUR EUR DKK USD
Potential trading restrictions may be applied to Far Eastone Telecom Source: UBS
22
UBS Equity Compass
Sector
Utilities
Strategy The operating environment for utilities remains challenging, with a weak power demand outlook in most regions and low power prices in liberalized markets (e.g. the US and Europe). The market environment is still particularly tough in Europe. Global earnings expectations are too high, and downgrades are likely. With relatively low growth and room for further disappointments, the global sector is trading at an unjustified premium. We confirm our underweight on utilities. Our positioning within the sector While the operating environment for utilities is likely to remain challenging in many regions, we believe the sector will offer attractive investment opportunities over the course of the year. We continue to prefer regulated companies that offer good free cash flow generation, modest earnings growth and attractive dividend yields. We have a regional preference for the UK. Following several months of weak sector performance, utilities have outperformed recently thanks to a sector rotation into defensives as well as better market conditions in the US and the dividend season in Europe. However, we think the good performance will be short-lived, since structural sector issues will not disappear overnight. We believe that lower power prices remain a burden for generators and integrated utilities in Europe in the long run. This will lead to weaker profitability and dividend cuts, as balance sheets are still stressed. We see two main reasons for this. Firstly, electricity demand is likely to decline further, as the macro environment in Europe is still weak and energy efficiency measurements have a high priority on the political agenda. Secondly, investments in renewable energy will lead to oversupply, preventing power prices from materially rising anytime soon. In the US, we still think regulated utilities should continue to do better than their peers operating in liberalized markets, where power prices are muted due to the low gas price environment. Thus, we believe that companies aiming to shift investments away from liberalized generating activities towards safe and more stable regulated assets are following the right strategy. We think UK utilities should continue to do well thanks to more benign power markets. The political and regulatory environment is more stable in the UK, and with a focus on managing their business in a relatively healthy generation environment, companies should be able to improve earnings and, even more importantly, dividends. Chinese power producers are benefiting from lower coal prices, which is improving power generation margins. We see selective investment opportunities here.
Underweight
Carsten Schlufter, analyst, UBS AG carsten.schlufter@ubs.com Ive been an equity analyst for 15years and have experienced several upward and downward trends on the stock markets. With the right investment ideas, you can always make money irrespective of market trends. Im confident that my investment ideas will again be a good choice for those seeking attractive shareholder returns. Yours, Carsten Schlufter
Most Preferred American Electric Power, Inc. Centrica CHINA RESOURCES PWR Duke Energy Korea Electric Power Northeast Utilities PPL Corporation Scottish & Southern Severn Trent Plc Terna United Utilities Group Plc Source: UBS USD GBP HKD USD KRW USD USD GBP GBP EUR GBP
Least Preferred Enel Exelon Publ Svcs Enterpr Red Electrica RWE EUR USD USD EUR EUR
23
UBS Equity Compass
Investment themes
Investment themes
US technology: Secular growth, on sale US housing: The long grind higher
The US tech sector trades at a valuation discount to the US market compared to its average premium of 20% over the last 18 years. We believe the valuation discount is unjustified given strong product cycles and a likely pick-up in enterprise spending. PC-oriented companies represent only 15% of the sector. Below-average earnings volatility, strong balance sheets and a growing focus on increasing dividends are all attributes that should further bolster sector valuations.
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We believe the US housing recovery is sustainable. We expect an average annual home price appreciation of 4%-5% over the next 3-4 years. We recommend investing in the housing recovery through a selection of stocks. Improvement of balance sheet quality and higher demand for credit and housing support banks, furnishings stocks and durable household products. Home improvement retailing and even selected automobile manufacturers should also see a pick up in activity.
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US mid caps: The sweet spot
Japanese exporters supported by weaker Yen
Even though growth outlook in the US is below its longterm trend, it is likely to be resilient with little risk to the upside or downside over the next six months. US mid caps usually have higher expected top-line (sales) and bottom-line (earnings) growth than large caps in such a growth environment. This supports the superior relative performance of US mid caps, although it does come with the risk of more cyclical earnings.
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The recent BoJ aggressive policy announcements have reinforced the three structural changes to JPY demand that have emerged in the past six months. We expect the BoJ to be supportive of a USDJPY rate of 95100. However, we believe the weaker JPY impact has not been fully reflected in the Japanese exporters stock prices yet. We believe earnings momentum of Japanese exporters should continue to improve due to a solid US economy and a positive impact to earnings by a weaker JPY.
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*Document links are UBS internal only. More information can be obtained via the e-banking platform, via quotes or by asking your client advisor.
24
UBS Equity Compass
Investment themes
No turnaround for European telecoms
Eurozone high quality dividends
Structural forces, such as falling monopolies and cheap new technology alternatives, are forcing most telecoms to cut tariffs. Capital intensity is also moving up leading to even lower free cash flow and dividends. Further adjustments to consensus estimates are therefore required for 2013E projections and onward, in our view. We recommend investors to stay clear of European telecoms.
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Dividends account for a considerable part of equity investors total return and cannot be ignored. On average, the MSCI EMU companies currently carry an expected dividend yield of 4.0%. This is very attractive compared to German government bond yields and in an international context. We like stocks of companies that are attractively valued, have an attractive dividend yield and where dividends are expected to grow in a healthy and steady way.
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UK high quality dividends
Swiss high quality dividends
An investment strategy that pursues both high quality dividend yields and steady dividend growth can offer good potential returns over time. Given the decline in UK government bond yields and above-target inflation, the yield on dividends looks particularly attractive. In a low growth environment we expect the contribution of dividends to total UK equity returns to increase.
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Swiss dividend-paying equities currently offer an attractive yield over the average yield in the Swiss franc fixed income market. This yield gap is particularly attractive if investors focus on companies with sustainable dividend levels. Additionally, high-yielding stocks tend to do particularly well during tougher economic times due to the defensive characteristics of dividends.
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25
UBS Equity Compass
Investment themes
Emerging market equities
Western winners from emerging market growth
Higher average EM growth prospects should translate into higher average corporate earnings growth. This, in turn, should support medium term equity market performance. EM equity valuations on a P/E of 12 x 12-month forward consensus earnings are slightly above their three-year average. Given a medium-term investment horizon, our base case is for EM equities, on average, to outperform developed market equities. Near term, however, uncertainty about growth has increased volatility.
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Emerging markets are no longer merely creating incremental growth for the world economy they have become its driving force. Exposure to emerging markets is more valuable than ever. Companies cannot afford to ignore this fact if they want to deliver earnings growth to their shareholders. Our selection of highly-exposed Western blue chips offers a combination of significant sales and profits generated from emerging regions, which should translate into superior share performance.
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Agribusiness: Efficiency gains from field to fork
Pricing power
As the worlds population continues to grow, more people need to be fed. Arable land is under threat. Rising food prices are a challenge for many on a daily basis. We think that companies offering efficiency gains and lower wastage along the entire agribusiness value chain from field to fork - should outperform the MSCI World in the long term.
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The outcome of the financial crisis is likely to be lower growth and higher inflation. We believe industries/companies that demonstrate pricing power are best positioned for this. Companies with pricing power also tend to offer greater margin stability and investors will appreciate this reliability, especially in an uncertain world. In the long run, these companies, which are often leaders in their industry, will attain better profitability and stand to benefit through the cycle.
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26
UBS Equity Compass
Investment themes
Water: Thirst for investments
Global REITs: Focus on strong fundamentals
Clean water supply is constrained by the lack of infrastructure in emerging markets and aging water infrastructure in developed regions. Climate change, urbanization and the emerging markets stronger focus on the industrial sector are also creating a negative impact on water supply. Companies exposed to these trends are an ideal way to benefit from this trend. We advise investing in a well-diversified investment vehicle that gives global exposure to the entire value chain.
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Central banks reflationary policies are diminishing tail risks and provide a very supportive financing environment for public real estate. We do not see downside ahead for major global listed real estate share prices. Overvaluation is not apparent. We do, however, expect a range-bound market that offers less absolute upside. We recommend that investors overweight the US and Asia, while we underweight Continental Europe and the UK.
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27
UBS Equity Compass
Technical analysis
Technical analysis
Global equities have remained resilient but a cautious stance remains warranted because there is a risk of the cyclical bull market that started in March 2009 coming to an end. The strength of global equities has been driven by defensive sectors, which is a worry. Emerging market equities may test an important support level this year. The global equity markets have remained more resilient than we expected, albeit in a potentially unhealthy way. The sectors that performed best, and are overbought but without any signs of weakness yet, are the defensives: healthcare and consumer staples. At the other end of the spectrum, we find the more cyclical sectors: weaker performers with weaker chart structures, including materials, IT and, energy to name a few. The resilience in global indices, notably the MSCI World but also the S&P 500, can therefore be attributed to defensive sectors. While we may have been too conservative on equities with our expectation of a correction on the MSCI World from early February in light of the MSCI World posting a recent high on April 11, we still believe that the risk of a correction outweighs the chance of further gains. In fact, our hypothesis was, and still is, that the equity markets are likely to end the cyclical bull market that started in March 2009 in 2013, and that this will involve a lot of erratic trading, which should eventually lead to a topping out process. We anticipated that the MSCI World Index would reach 1,450 or perhaps overshoot this level a bit within this process, and see the recent high on the index of 1,465 in this context. Figure 1 shows the weekly chart for the MSCI World index (1,444 on March 23). The recent high of 1,465 on April 11 exceeded what we considered the maximum achievable upside target of 1,450, negating our prediction of a correction starting on March 15. Nevertheless, we maintain our cautious stance and expect the index will turn out to have started correcting on April 11 or soon thereafter. The weekly chart shows
Hans Sanders, CFA, CMT, analyst, UBS AG hans.sanders@ubs.com Technical analysis is probably as different from fundamental analysis as turbulent combustion, the subject of my PhD thesis, is from business administration. But I also experienced the world of fundamental equity analysis as a sell-side analyst at a leading investment bank in London. Yours, Hans Sanders
Fig. 1: MSCI World Weekly Candle Stick Chart
Source: UBS, Updata and Bloomberg
28
UBS Equity Compass
Technical analysis
the most negative candle stick since the November low for the week ending April 19, which could be an imperfect bearish reversal candle something we have not seen since the November low. The resistance level of 1,450 is also quite fascinating, as it equals the major March 2000 peak, is the neckline of the 2007 topping formation and is the exact 76.4% Fibonacci retracement of the 2007-2009 bear market. In an overbought condition, this is unlikely to be exceeded. Figure 2 shows the MSCI Emerging Market Index (1010 on April 23). The index does not have a very good overall structure because it seems to have been consolidating since the April-October 2011 sell-off. The consolidation range is fairly wide at between 880 and 1080, with the latter corresponding to a breakdown of the top in 2010-2011. The index has already been in corrective mode since early January 2013, and has fallen to our downside target of 1005, which we published in Technical Analysis of Major Asset Classes, and undercut it. There is a risk of the index eventually testing the support level of 880 again. A break of this support would complete a very large top, with potential downside to 625. We do not expect this level to break, so if the index were to fall to 880, it would be a good buying opportunity with a very clear stop-loss. For more detailed information, please consult Technical Analysis of Major Asset Classes in the publication Technical Themes. This monthly publication can be accessed in UBS e-banking via the Research tab on Quotes or alternatively can be subscribed to.
Fig. 2: DJ STOXX 600 Weekly Candle Stick chart
Source: UBS, Updata and Bloomberg
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UBS Equity Compass
Global & regional equity sector strategies
Global & regional equity sector strategies

Regions Sectors Consumer Discretionary Consumer Staples Energy Financials Healthcare Industrials IT Materials Telecom Utilities Global () US () () EMU
Arrow indicates our preference relative to global equity markets over a 3- to 12-month horizon. Note: Arrow in brackets indicates last months positioning.
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Selection of UBS CIO WM research publications

Monthly
A monthly guide to investing in Swiss financial markets
Monthly
15 March 17 November 2013 Bernisches Historisches Museum
Monthly
The cultural highlight 2013 now in Bern

Qin The eternal emperor and his terracotta warriors
www.qin.ch
UBS Investors Guide

CIO WM Research | 28 March 2013 Clients of UBS Switzerland / Swiss domicile
Switzerland
UBS Equity Compass

CIO WM Research May 2013
Distribution season
Japan has awakened
America springs forward

Equities Less upside potential, more focus on yields Bonds Corporate hybrids as alternative Economy Growing slightly
Interview Its always the same regions that come up with innovative ideas: Beat Hotz-Hart, Professor of Economics Market outlook The worlds engine keeps going Fault lines Cyprus and European amateurs
Japanese equities Not too late
US equities Stay overweight
Emerging markets Assume neutral position
ab
12_0750_Qin_Ins_InvestGuide.indd 3 12 21.03.13 16:59
Investing in Switzerland Investing in Switzerland is a cross-asset investment guide for those interested to invest in the Swiss financial markets, covering equities, bonds, real estate, currency and more. Available in: English, German, French, Italian
UBS Investors Guide UBS Investors Guide gives the background to UBSs current investment strategy and the latest global economic developments, together with market analyses and recommendations for equities, bonds, currencies and the emerging markets. Available in: English, German, French, Italian, traditional and simplified Chinese
UBS Equity Compass UBS Equity Compass is a comprehensive view on global equity markets. Stay informed about market trends and find out about the latest equity strategies and investment themes supported by clear investment advice and concrete investment opportunities. Available in: English, German
Monthly
Quarterly
UBS Outlook Schweiz
Thematic
UBS research focus
CIO WM Research October 2012

UBS Wochenvorschau Podcast

Fr Smartphone: Scannen Sie den Code mit einer App wie scan www.ubs.com/research-podcast
UBS Weekly Podcast

Scan to listen to our latest weekly podcast; also available on www.ubs.com/research-podcast
2. Quartal 2013
Looking for improvement and growth
Konjunkturanalyse Schweiz
Emerging market currencies The case for an underappreciated asset class

Attractive value in Chinese financials Robust growth in Indonesia Laggards in Japan Thema Wettbewerbsfhigkeit Konjunktur Europa als Klotz am Bein Immobilien Anzeichen einer Beruhigung The paradigm shift in emerging market currencies Emerging market currencies in a portfolio context
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UBS Equity Compass Asia UBS Equity Compass Asia is a comprehensive view on Asian equity markets. Stay informed about Asian stock markets and investment themes supported by concrete investment opportunities. Available in: English
UBS Outlook Schweiz UBS Outlook Schweiz caters primarily for Swiss entrepreneurs and managers. Each issue presents the results of UBS Research Switzerlands survey of industrial and service companies regarding their business outlook, as well as analysis of currencies, interest rates and the real estate market. Available in: German, French, Italian
UBS Research Focus UBS Research Focus examines how major global trends affect personal wealth planning decisions. Each issue is devoted to a specific subject spanning the fields of economics, financial markets and investment. Available in: English, German, French, Italian, Spanish, Portuguese
UBS CIO Podcast

Upcoming events relevant for financial markets and current themes discussed in an interview setting. Listen on http://www.ubspodcast.ch/research/ as of 10 am Friday mornings. Available in: English, German, French, Italian
Online
Publications with content available to the general public can be found at www.ubs.com/research. Clients can access our online Research portal via e-banking or via Quotes. The portal contains electronic versions of all of our publications and much more.
Order or subscribe
UBS clients can order or subscribe to the above publications. Please ask your client advisor or send an e-mail to sh-iz-ubs-publikationen@ubs.com.
UBS Equity Compass
Appendix
Rating history changes (past 12 months)
Company ABInBev Accenture Ltd. Activia Properties Adecco Advanced Info Service Public Co Ltd Agnico-Eagle Mines Agricultural Bank of China Ahold Alpiq Hldg Alstria Office Amazon AMBEV AMEC American Capital Agency Corp American Electric Power Angang Steel Apache Arbonia-Foster ARM Holdings Plc Asahi Kasei Ashtead Group ASML Astellas Pharmaceutical AstraZeneca Asustek Computer Atlas Copco A Autoliv Autoneum Aviva Bachem Bank of America Bank of China Banks of India BASF BAT UK Bayer BBVA Beiersdorf Bekasi Fajar Industrial Estate Belgacom Belimo Bharat Heavy Elec. Ltd BHP Billiton Plc BNP Paribas Boeing Co. Bouygues BP Brenntag Bridgestone British Land Camden Properties Capitaland Ltd CapitaMall Trust Rating date 12/31/12 7/31/12 4/3/13 9/24/12 12/7/12 11/6/12 4/17/13 10/24/12 12/5/12 8/22/12 8/30/12 4/4/13 4/17/13 8/17/12 7/18/12 7/9/12 4/23/13 12/20/12 3/11/13 4/5/13 3/7/13 7/10/12 4/10/13 4/18/13 4/30/12 1/31/13 4/5/13 10/26/12 4/9/13 2/20/13 11/14/12 4/17/13 8/8/12 6/7/12 4/17/13 5/9/12 6/19/12 12/10/12 4/1/13 11/1/12 4/5/13 12/20/12 4/17/13 10/24/12 1/9/13 6/19/12 5/29/12 3/21/13 4/15/13 1/29/13 6/29/12 4/4/13 6/6/12 Relative rating Most Preferred Most Preferred Most Preferred Least Preferred Most Preferred Most Preferred Least Preferred Most Preferred Least Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Least Preferred Most Preferred Most Preferred Least Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Least Preferred Least Preferred Least Preferred Most Preferred Least Preferred Most Preferred Least Preferred Least Preferred Most Preferred Most Preferred Most Preferred Least Preferred Most Preferred Most Preferred Least Preferred Least Preferred Most Preferred Most Preferred Most Preferred Most Preferred Least Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Exelon Experian Exxon Mobil Corp Far Eastone Telecom Faurecia FIBRA MACQUARIE Fielmann First Majestic Silver Corp. First Republic Bank Flughafen Zurich AG France Telecom Duke Energy E*Trade Financial EADS Ebay Edenred Elementis Emmi Ericsson Daetwyler Danaher Corp Danone Deutsche Bank Deutsche Telekom Digital Realty Trust Dominion Diamond Corporation Du Pont City Developments Coloplast B Commonwealth Bank of Australia ConocoPhillips Corio Corporacion Inmobiliaria Vesta Country Garden CRH CS Group Company CBS Corp CDL Hospitality Trust Celgene Cemex CEZ Cheng Uei Chesapeake Energy Corp. China Construction Bank China Overseas Land China Resources Power China Shenhua Energy Citigroup Citrix Systems Inc. Rating date 10/23/12 7/31/12 6/22/12 2/14/13 12/3/12 6/27/12 5/10/12 5/8/12 5/11/12 7/9/12 2/18/13 11/27/12 4/5/13 4/26/12 1/17/13 6/22/12 8/17/12 4/26/13 3/18/13 2/7/13 11/6/12 7/27/12 3/27/13 6/14/12 10/31/12 11/14/12 5/22/12 9/14/12 11/27/12 6/22/12 11/14/12 4/24/13 12/17/12 6/19/12 3/27/13 11/12/12 4/1/13 3/5/13 3/7/13 9/27/12 2/14/13 12/27/12 5/30/12 12/5/12 11/16/12 8/15/12 9/20/12 4/5/13 5/25/12 12/10/12 5/4/12 5/10/12 11/27/12 Relative rating Most Preferred Most Preferred Most Preferred Most Preferred Least Preferred Most Preferred Least Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Least Preferred Most Preferred Least Preferred Most Preferred Least Preferred Least Preferred Least Preferred Most Preferred Most Preferred Least Preferred Most Preferred Least Preferred Most Preferred Most Preferred Most Preferred Least Preferred Least Preferred Least Preferred Most Preferred Not Selected Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Least Preferred Most Preferred Most Preferred Most Preferred Least Preferred Least Preferred Most Preferred Most Preferred Most Preferred Least Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Least Preferred
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UBS Equity Compass
Appendix
Company Gap Gecina Genomma Lab Georg Fischer GF Inbursa Gilead Sciences Givaudan GlaxoSmithKline Grupo Financiero Banorte Grupo Televisa Gurit Holding AG Halliburton Co. Hammerson Hana Financial Hang Lung Properties Henkel Rating date 9/3/12 4/5/13 5/9/12 1/10/13 2/1/13 7/18/12 10/10/12 8/24/12 7/12/12 7/5/12 6/27/12 7/17/12 10/16/12 12/17/12 1/17/13 1/15/13 7/23/12 Hochschild Mining Honda HSBC Hufvudstaden Hugo Boss Hutchison Whampoa IBM 10/11/12 2/20/13 4/18/13 1/14/13 10/8/12 5/10/12 1/24/13 7/4/12 Impala Platinum Inditex Indofood Industrias CH Ingersoll-Rand Inotera Memories 12/28/12 9/3/12 7/4/12 4/5/13 6/27/12 4/24/13 1/28/13 ITV plc JP Morgan Chase & Co Julius Baer K+S Kaba Kao Keyence Kilroy Realty Korea Electric Power Khne&Nagel Lanxess Leoni 5/25/12 1/16/13 3/27/13 1/3/13 3/26/13 12/11/12 4/5/13 6/11/12 12/17/12 9/28/12 9/14/12 4/26/13 12/28/12 Link REIT Mah Sing MAN McDonald's Corp Mediatek Merck & Co. Metso Mexichem 8/29/12 1/17/13 6/5/12 5/16/12 6/1/12 4/24/13 1/31/13 10/23/12 Relative rating Most Preferred Least Preferred Most Preferred Most Preferred Least Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Least Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Least Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Least Preferred Most Preferred Most Preferred Most Preferred Least Preferred Most Preferred Most Preferred Least Preferred Most Preferred Most Preferred Most Preferred Least Preferred Least Preferred Most Preferred Most Preferred Most Preferred Most Preferred Least Preferred Most Preferred Most Preferred Least Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Least Preferred Most Preferred Straumann Sumitomo Chemical Company Mobimo Mondelez International Munich Re Naspers Nestl Next Nippon Steel Nitto Denko Northeast Utilities Northrop Grumman Novartis Novo Nordisk Novozymes B OCBC Bank OHL Mexico Old Mutual Orascom Development Holding AG PepsiCo Petra Diamonds Peugeot Pfizer Philip Morris International Phoenix Mills Polyus Gold International PPG Industries, Inc. Pruksa Real Estate PSP Swiss Property Public Service Enterprise Group Qualcomm Red Electrica Rheinmetall Richemont Rio Tinto Plc Roche GS Rolls-Royce Royal Dutch Shell A RWE SABMiller Salzgitter AG SAP AG SBAC Communications Scottish & Southern Severstal SGS Shimao Property Holdings Shin-Etsu Chemical Singapore Telecom SK Telecom SMC SPS Rating date 3/28/13 10/4/12 8/16/12 1/3/13 4/25/12 8/30/12 2/26/13 2/26/13 4/2/13 11/13/12 4/26/12 6/13/12 2/20/13 5/28/12 5/9/12 4/18/13 4/3/13 12/10/12 1/21/13 4/26/12 5/21/12 8/1/12 10/25/12 8/28/12 4/25/13 4/5/13 9/7/12 2/19/13 11/14/12 9/13/12 3/21/13 4/25/12 12/27/12 8/27/12 2/11/13 4/23/13 7/20/12 2/7/13 1/16/13 5/9/12 4/9/13 12/14/12 4/26/13 4/25/12 12/7/12 3/11/13 5/7/12 11/12/12 4/9/13 4/9/13 9/14/12 2/19/13 3/13/13 Relative rating Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Least Preferred Most Preferred Most Preferred Least Preferred Most Preferred Most Preferred Most Preferred Least Preferred Most Preferred Most Preferred Least Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Least Preferred Least Preferred Most Preferred Least Preferred Least Preferred Most Preferred Most Preferred Most Preferred Least Preferred Most Preferred Least Preferred Most Preferred Least Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Least Preferred Most Preferred Most Preferred
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UBS Equity Compass
Appendix
Company Swire Properties Swisscom Rating date 9/26/12 6/14/12 5/15/12 Symrise Taiwan Semiconductor Mfg. Tanger Factory Outlet TD Ameritrade Telenor Terna Teva Pharmaceuticals The Swatch Grp Reg ThyssenKrupp 8/31/12 4/26/12 11/7/12 3/27/13 10/11/12 4/3/13 8/16/12 2/19/13 9/18/12 7/3/12 TJX Companies Toray Toyota Motor Transocean Travelers Triumph Group Tupperwarebrands Two Harbors Investment Corp Unibail-Rodamco Union Pacific United Continental United Technologies Urban Outfitters Inc. Valeo Vestas Wind Systems A/S Virtus Investment Partners VMWare Vodafone Group Volkswagen Preference Vontobel Williams-Sonoma, Inc. Windstream Communications Xstrata Yamana Gold Yoox 11/12/12 2/20/13 6/25/12 4/26/12 2/21/13 12/18/12 1/28/13 3/26/13 1/25/13 12/19/12 9/20/12 11/15/12 8/30/12 12/28/12 2/11/13 3/27/13 2/25/13 5/29/12 8/16/12 3/19/13 9/3/12 2/20/13 9/24/12 11/23/12 9/7/12 Relative rating Most Preferred Most Preferred Least Preferred Least Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Least Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Most Preferred Least Preferred Most Preferred Most Preferred Most Preferred Most Preferred Least Preferred Most Preferred Least Preferred Most Preferred Most Preferred Most Preferred
34
UBS Equity Compass
Appendix
If you require further information on the instruments or issuers mentioned in this publication, or you require general information on UBS CIO WM Research including research policies and statistics regarding past recommendations, please contact either your Client Advisor or the mailbox UBS-research@ubs.com giving your country of residence. Equity selection system Analysts provide three equity selections (Most Preferred, Neutral View, Least Preferred). Equity preference Most Preferred Taking into consideration the stocks rating as well as other factors relevant for portfolio management (e.g. risk, diversification), analysts expect the stock to outperform versus the thematic benchmark, i.e. to contribute positively to the overall performance of the relevant Equity Preference List (EPL) in the next 12 months. Neutral View Analysts expect the stock to neither contribute positively nor negatively to the performance of the relevant EPL, i.e. to perform in line with the thematic benchmark in the next 12 months. Least Preferred Taking into consideration the stocks rating as well as other factors relevant for portfolio management (e.g. risk, diversification), analysts expect the stock to underperform versus the thematic benchmark, which results in a positive contribution to the EPL in the next 12 months. Suspended Issuing an analysts research on a company can be restricted due to legal, regulatory, contractual or best business practice obligations, which are normally caused by UBS Investment Banks participation in an investment banking transaction involving the company concerned. Equity selection: An assessment relative to a benchmark Equity selections are a relative assessment versus a thematic benchmark. Analysts select a benchmark for every thematic investment context they define, be it a regional, sector or other investment context. These benchmarks are often defined as MSCI Level 1, 2 or 3. In cases where such benchmarks do not appropriately reflect the investment context, we may deem a different benchmark more appropriate. The assigned benchmark is also used to measure the performance of the individual analyst. Stocks can be selected for several Equity Preference Lists (EPLs). In order to keep the various preference lists consistent, a stock can only be selected as a part of either Most Preferred lists or Least Preferred lists. As benchmarks among lists differ, stocks must not necessarily be included on every list they could theoretically be added to. UBSs selection methodology shows private clients how to best invest if they would like to profit from a specific investment theme. Current UBS global rating distribution (as of last month-end) Buy Neutral Sell Suspended Discontinued 45.29% (39.85%*) 41.58% (41.76%*) 11.82% (23.19%*) 1.20% (90.48%*) 0.11% (100.00%*)
*Percentage of companies within this rating for which investment banking services were provided by UBS AG or UBS Securities LLC or its affiliates within the past 12 months.
35
UBS Equity Compass
Appendix
Terms and abbreviations Term / Abbreviation 1H, 2H, etc. or 1H07, 2H07, etc. 1Q, 2Q, etc. or 1Q07, 2Q07, etc. 2007E, 2008E, etc. ADR AUM Description / Definition First half, second half, etc. or first half 2007, second half 2007, etc. First quarter, second quarter, etc. or first quarter 2007, second quarter 2007, etc. 2007 estimate, 2008 estimate, etc. American depositary receipt Assets under management = total value of own and third-party assets managed Billion (109) Basis point or basis points (100 bps = 1 percentage point) Book value per share = shareholders equity divided by the number of shares Compound annual growth rate Cantonal income per capita (Switzerland only) Capital expenditures 1) Cash flow from operations 2) Chief financial officer Cash flow per share Costs as a percentage of income Consumer price index Combined ratio = ratio of claims and expenses as a percentage of premiums (for insurance companies) Calendar year Discounted cash flow Dividend discount model Dividend per share divided by price per share Dividend per share Earnings before interest and taxes EBIT divided by revenues Earnings before interest, taxes, (depreciation) and amortization EBITDA divided by revenues EBITDA divided by net interest expense Earnings before interest, taxes, depreciation, amortization and rental expense Estimated fair value range mn n.a. or NA NAV Net Debt LLR/Gross Loans (%) m/m FCF Yield (%) FFO FY GDP GF Gross Margin (%) h/h Interest Coverage Term / Abbreviation EmV Description / Definition Embedded value = net asset value + present value of forecasted future profits (for life insurers) Earnings per share Shareholders equity divided by total assets Enterprise value = market value of equity, preferred equity, outstanding net debt and minorities Free cash flow = cash a company generates above outlays required to maintain/expand its asset base Free cash flow divided by market capitalization Funds from operations Fiscal year / financial year Gross domestic product Grandfathered status Gross profit divided by revenues Half-year over half-year; half on half Ratio that expresses the number of times interest expenses are covered by earnings Interest expense International securities identification number Loan loss provisions divided by net interest income Loan loss reserves divided by gross loans Month-over-month; month on month Million (106) Not available or not applicable Net asset value Short- and long-term interestbearing debt minus cash and cash equivalents Net interest income divided by average interest-bearing assets Net income divided by revenues Not meaningful Non-performing loans
EPS Equity Ratio (%) EV
bn bp or bps BVPS
FCF
CAGR Cant Inc/Capita Capex CFO CFPS Cost/Inc Ratio (%) CPI CR
Interest exp ISIN LLP/Net Int Inc (%)
CY DCF DDM Dividend Yield (%) DPS EBIT EBIT Margin (%) EBIT(D)A EBITDA Margin (%) EBITDA/Net Interest EBITDAR
Net Int Margin (%) Net Margin (%) n.m. or NM NPL
EFVR
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Terms and abbreviations Term / Abbreviation Op Margin (%) p.a. P/BV P/CFPS P/E P/E Relative P/EmV PEG Ratio PPI Prim Bal/Cur Rev (%) Description / Definition Operating income divided by revenues Per annum (per year) Price to book value Price/Cash flow per share Price to earnings P/E relative to the market Price to embedded value P/E ratio divided by earnings growth Producer price index Primary balance divided by current revenue (total revenue minus capital revenue) Net income divided by revenues Quarter-over-quarter; quarter on quarter Return on assets Return on capital employed = EBIT divided by difference between total assets & current liabilities Return on equity Return on average equity Return on invested capital Ratio of shareholders equity to net premiums written (for insurance companies) Swiss tax index; 100 = average tax burden of all cantons Tier 1 capital divided by riskweighted assets; describes a banks capital adequacy Trillion (1012) Swiss company identifier Weighted average cost of capital UBS Chief Investment Office Year-over-year; year on year Year-to-date
Profit Margin (%) q/q ROA (%) ROCE (%)
ROE (%) ROAE (%) ROIC (%) Solvency Ratio (%)
Tax Burden Index Tier 1 Ratio (%)
tn Valor WACC UBS CIO y/y YTD
37
UBS Equity Compass
Appendix
Analyst certification Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report. Any price of securities written in this publication is taken as at the close of business on the main market of listing on the date shown unless otherwise stated. Disclosures (26 April 2013) Accenture PLC 1, 2, 3, 4, 5. Activia Properties Inc 6, 7. Adecco SA 2, 6, 7, 8, 9. Adobe Systems Inc 1, 2, 3, 4, 5. Agnico-Eagle Mines Ltd 2. Agricultural Bank of China Ltd 10. Koninklijke Ahold NV 2. Allianz SE 2, 9. Alpiq Holding AG 6, 9, 11. Alstria Office REIT-AG 9. Amazon.com Inc 2, 4, 5. Cia de Bebidas das Americas 2. American Capital Agency Corp 1, 2, 3, 6, 9, 12, 13. American Electric Power Co Inc 1, 2, 3, 4, 5, 6, 7, 9, 12. Anadarko Petroleum Corp 1, 2, 3, 4, 5, 6, 8, 9, 12. Angang Steel Co Ltd 2, 14. Anheuser-Busch InBev NV 2, 9. Aon PLC 1, 2, 3, 4, 5, 9, 12, 15. Apache Corp 1, 2, 3, 4, 5, 6, 7, 9, 12. AFG Arbonia-Forster Holding AG 8, 9, 14. ARM Holdings PLC 2, 16. Aryzta AG 6, 7, 9. Asahi Kasei Corp 2, 6. Ashtead Group PLC 6, 7, 12, 16. ASML Holding NV 2, 17. Astellas Pharma Inc 2. AstraZeneca PLC 2, 4, 5. Atlas Copco AB 2. Autoliv Inc 2. Autoneum Holding AG 6, 7, 9. Aviva PLC 2. AXA SA 2, 4, 5, 9. Bachem Holding AG 9. Baloise Holding AG 2, 6, 7, 8, 9, 14. Bank of America Corp 1, 2, 3, 4, 5, 6, 7, 9, 12, 13. Bank of China Ltd 2, 10. Barclays PLC 2, 4, 5, 6, 7, 18. BASF SE 2, 6, 9, 12, 16. British American Tobacco PLC 2, 6, 16, 18, 19. Bayer AG 2, 9, 16. Banco Bilbao Vizcaya Argentaria SA 2, 6, 9. Bekasi Fajar Industrial Estate Tbk PT 9. Belgacom SA 2. Belimo Holding AG 9. BHP Billiton PLC 2, 6, 9, 12, 20, 21. Bilfinger SE 2, 15. Bayerische Motoren Werke AG 2, 4, 5, 6, 7, 9, 12, 22. BNP Paribas SA 2, 4, 5, 6, 7, 9. Boeing Co/The 1, 2, 3, 4, 5, 9, 12, 18. Bouygues SA 2. BP PLC 2, 6, 7, 9, 12, 16. Bridgestone Corp 2. Brilliance China Automotive Holdings Ltd 2, 6, 7. British Land Co PLC 2, 6, 7, 9, 14, 16. Camden Property Trust 1, 2, 3, 4, 5, 6, 7, 12. Campbell Soup Co 1, 2, 3, 4, 5, 6, 7, 9, 12. CapitaLand Ltd 2. CarMax Inc 2. Carrefour SA 2, 6, 9. CBS Corp 1, 2, 3, 6, 7, 9, 12. Celgene Corp 1, 2, 3, 6, 12. Cemex SAB de CV 1, 2, 3. Centrica PLC 2, 6, 7, 9, 12, 16. CenturyLink Inc 2, 7, 9, 12. CEZ AS 6. Chesapeake Energy Corp 2, 6, 7, 8, 9, 12. Cheung Kong Holdings Ltd 2, 10. China Construction Bank Corp 2, 10, 18. China Overseas Land & Investment Ltd 6, 7, 10. China Pacific Insurance Group Co Ltd 6, 7, 10, 17. China Resources Power Holdings Co Ltd 2. China Shenhua Energy Co Ltd 2, 9, 10, 14. Citigroup Inc 1, 2, 3, 4, 5, 6, 7, 9, 12, 13. Citrix Systems Inc 1, 2, 3, 4, 5. City Developments Ltd 2. CNP Assurances 6, 9. Colgate-Palmolive Co 2, 4, 5. Commonwealth Bank of Australia 2, 6, 7, 23. Cie Financiere Richemont SA 2, 9. ConocoPhillips 1, 2, 3, 6, 7, 12, 13. Credit Agricole SA 2, 6, 7, 9. CRH PLC 2, 6, 7, 9, 16. Credit Suisse Group AG 2, 4, 5, 8, 9, 24. Daetwyler Holding AG 9. Danaher Corp 1, 2, 3, 9, 12. Danone SA 2. Deutsche Bank AG 2, 4, 5, 6, 7, 9, 12. Deutsche Post AG 2. Deutsche Telekom AG 2, 4, 5. Deutsche Wohnen AG 6, 7, 9. Devon Energy Corp 1, 2, 3, 4, 5, 6, 7, 9, 12. Diageo PLC 2, 6, 7, 9, 12, 16, 25. Digital Realty Trust Inc 2. DNB ASA 2, 6, 9. Dominion Diamond Corp 2. EI du Pont de Nemours & Co 1, 2, 3, 4, 5, 6, 7, 9, 12, 13, 18. Duke Energy Corp 2, 4, 5, 6, 7, 9, 12. E*TRADE Financial Corp 2, 4, 5. European Aeronautic Defence and Space Co NV 2, 9, 12, 22. eBay Inc 2, 4, 5, 6, 7, 12. Edenred 6, 9. Elementis PLC 6, 16. Emmi AG 9. Enel SpA 2, 6, 7, 9, 18. Telefonaktiebolaget LM Ericsson 2. Exelon Corp 1, 2, 3, 4, 5, 6, 7, 9, 12, 13. Experian PLC 2, 6, 7, 12, 14, 16. Exxon Mobil Corp 2, 3, 4, 5, 13. Fiat Industrial SpA 9, 12. Mexico Real Estate Management SA de CV 6, 7. First Majestic Silver Corp 2. Flughafen Zuerich AG 6, 7, 9. France Telecom SA 2. Fresenius SE & Co KGaA 2. Grupo Financiero Banorte SAB de CV 2. Gap Inc/ The 2, 4, 5. Gazprom OAO 2, 6, 7, 9. GEA Group AG 2. Gecina SA 9. Georg Fischer AG 8, 9, 14. Grupo Financiero Inbursa SAB de CV 2. Gilead Sciences Inc 2. Givaudan SA 2, 8, 9, 17. GlaxoSmithKline PLC 2, 6, 7, 9, 12, 16. Grupo Televisa SAB 2. Gurit Holding AG 9. Halliburton Co 2, 4, 5. Hammerson PLC 17. Hang Lung Properties Ltd 2. Henkel AG & Co KGaA 2. Honda Motor Co Ltd 2, 4, 5. Honeywell International Inc 1, 2, 3, 4, 5, 13. HSBC Holdings PLC 2, 4, 5, 6, 10, 12, 26. Hutchison Whampoa Ltd 2, 10. International Business Machines Corp 1, 2, 3, 4, 5, 6, 7, 12, 13. Impala Platinum Holdings Ltd 2, 6, 7, 9. Inditex SA 2. Indofood Sukses Makmur Tbk PT 2. Ingersoll-Rand PLC 2, 4, 5. Intershop Holdings 9. ITV PLC 6. JPMorgan Chase & Co 1, 2, 3, 4, 5, 6, 7, 9, 12, 13. Julius Baer Group Ltd 2, 9. K+S AG 2, 8. Kaba Holding AG 8, 9. Kao Corp 2. Keppel Corp Ltd 2, 9. Kilroy Realty Corp 2. Korea Electric Power Corp 2. Kuehne + Nagel International AG 9. Kuoni Reisen Holding AG 9, 14. Lanxess AG 12. Linde AG 2. Lloyds Banking Group PLC 2, 4, 5, 6, 9, 15, 16. LVMH Moet Hennessy Louis Vuitton SA 2. MAN SE 2. McDonalds Corp 2, 4, 5. Merck & Co Inc 1, 2, 3, 4, 5, 6, 12, 13, 18. MetroPCS Communications Inc 2, 4, 5. Metso OYJ 2, 8, 9. Mitsubishi Estate Co Ltd 2. Mobimo Holding AG 9. Mondelez International Inc 1, 2, 3, 4, 5, 6, 7, 12. Muenchener Rueckversicherungs AG 2. Naspers Ltd 2. Nestle SA 2, 4, 5, 6, 7, 9, 18, 27. Next PLC 6, 9, 16. Nippon Steel & Sumitomo Metal Corp 2. Nitto Denko Corp 2. Northeast Utilities 2, 6, 7, 8, 12. Northrop Grumman Corp 2, 4, 5. Novartis AG 2, 6, 7, 8, 9, 12, 18, 28. Novo Nordisk A/S 2. Novozymes A/S 2. Orascom Development Holding AG 9. Old Mutual PLC 2, 9. Panalpina Welttransport Holding AG 9. Pargesa Holding SA 9. PepsiCo Inc 1, 2, 3, 4, 5, 6, 7, 12, 13. Peugeot SA 2, 9. Pfizer Inc 2, 3, 4, 5, 13. Philip Morris International Inc 2, 4, 5, 6, 7. Polyus Gold International Ltd 2. PPG Industries Inc 2, 4, 5, 18. PPL Corp 1, 2, 3, 6, 7, 9, 12. PSP Swiss Property AG 6, 7, 9. Public Service Enterprise Group Inc 1, 2, 3, 12. QUALCOMM Inc 2, 3, 4, 5, 13. Reckitt Benckiser Group PLC 2. Red Electrica Corp SA 2, 8. Reed ElseUBS CIO WM Research May 2013 38
UBS Equity Compass
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vier NV 2. Reed Elsevier PLC 2, 6, 7, 9, 16. Rio Tinto PLC 2, 6, 7, 9. Roche Holding AG 2, 9, 18. Rockwell Collins Inc 1, 2, 3, 4, 5, 6, 9, 12, 18. Rolls-Royce Holdings PLC 2, 18. Royal Bank of Canada 2, 4, 5, 6, 7, 12, 29. Royal Dutch Shell PLC 2, 6, 12. Royal Dutch Shell PLC 2, 6, 12. RSA Insurance Group PLC 6, 9. RWE AG 2, 6, 7, 9, 24. SABMiller PLC 2. Safran SA 2. Salzgitter AG 2. SandRidge Energy Inc 2, 6, 7, 12. Sanofi 2. SAP AG 2, 4, 5, 6, 7, 12. SBA Communications Corp 2. Schlumberger Ltd 2, 4, 5. Schweiter Technologies AG 9, 14. SCOR SE 2, 4, 5, 6, 7, 9. SSE PLC 2. Severn Trent PLC 2, 6. Severstal OAO 9. SGS SA 2, 8, 9, 30, 31. Shimao Property Holdings Ltd 6, 7, 9. Shin-Etsu Chemical Co Ltd 2. Siemens AG 2, 6, 7, 9, 12, 16, 17, 32. Singapore Telecommunications Ltd 2, 15. SK Telecom Co Ltd 2, 6, 7, 9. Sprint Nextel Corp 2, 4, 5, 6, 9, 12, 33. Straumann Holding AG 6, 7, 8, 9. Sumitomo Chemical Co Ltd 2. Swiss Prime Site AG 6, 7, 9. Swiss Re AG 2, 9, 24. Swisscom AG 2, 9. Symrise AG 2, 34. Taiwan Semiconductor Manufacturing Co Ltd 2. Tamedia AG 9. Tanger Factory Outlet Centers 2, 6, 12. TD Ameritrade Holding Corp 1, 2, 3, 4, 5, 13. TDC A/S 6, 7, 8, 9. Technip SA 2. Telenor ASA 2. Teva Pharmaceutical Industries Ltd 2. Link REIT/The 10. ThyssenKrupp AG 18. tw telecom inc 2, 6, 7, 12. TJX Cos Inc 2, 4, 5. Toray Industries Inc 2, 16. Total SA 2, 6, 7, 9, 12, 15. Toyota Motor Corp 2, 4, 5, 6, 7. Transocean Ltd 1, 2, 3, 9. Travelers Cos Inc/The 1, 2, 3, 4, 5, 6, 12, 13. Triumph Group Inc 2, 3, 6, 7, 9, 12, 13. Tupperware Brands Corp 2. Two Harbors Investment Corp 2, 8. Unibail-Rodamco SE 6, 7, 9. Unilever PLC 2, 6, 9, 16. Union Pacific Corp 2, 4, 5. United Continental Holdings Inc 2, 9, 35. United Overseas Bank Ltd 2, 6, 7, 9. United Technologies Corp 2, 4, 5, 18. United Utilities Group PLC 2. Urban Outfitters Inc 2. Valeo SA 2. Vestas Wind Systems A/S 2, 8, 9. Vinci SA 2, 4, 5, 9, 12. Virtus Investment Partners Inc 2. VMware Inc 2, 4, 5, 8. Vodafone Group PLC 2, 6, 9, 15, 36. Volkswagen AG 2, 6, 9, 16. Vontobel Holding AG 9. Weatherford International Ltd/Switzerland 1, 2, 3, 4, 5, 6, 8, 9, 12. Williams-Sonoma Inc 2, 9. Windstream Corp 2, 9. Xstrata PLC 2, 8, 9. Yamana Gold Inc 2. 1. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and non-securities services are being, or have been, provided. 2. UBS Securities LLC makes a market in the securities and/or ADRs of this company. 3. Within the past 12 months, UBS Securities LLC has received compensation for products and services other than investment banking services from this company/entity. 4. This company/entity is, or within the past 12 months has been, a client of UBS Financial Services Inc, and non-investment banking securities-related services are being, or have been, provided. 5. Within the past 12 months, UBS Financial Services Inc has received compensation for products and services other than investment banking services from this company. 6. Within the past 12 months, UBS AG, its affiliates or subsidiaries has received compensation for investment banking services from this company/entity. 7. UBS AG, its affiliates or subsidiaries has acted as manager/co-manager in the underwriting or placement of securities of this company/entity or one of its affiliates within the past 12 months. 8. UBS AG, its affiliates or subsidiaries beneficially owned 1% or more of a class of this company`s common equity securities as of last month`s end (or the prior month`s end if this report is dated less than 10 days after the most recent month`s end). 9. UBS AG, its affiliates or subsidiaries expect to receive or intend to seek compensation for investment banking services from this company/entity within the next three months. 10. UBS Securities (Hong Kong) Limited is a market maker in the HK-listed securities of this company. 11. UBS is acting as manager/co-manager, underwriter, placement or sales agent in regard to an offering of securities of this company/entity or one of its affiliates. 12. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and investment banking services are being, or have been, provided. 13. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and non-investment banking securities-related services are being, or have been, provided. 14. UBS AG, its affiliates or subsidiaries beneficially owned more than 3% of the total issued share capital of this company. 15. An employee of UBS AG is an officer, director, or advisory board member of this company. 16. UBS Limited acts as broker to this company. 17. UBS AG, its affiliates or subsidiaries beneficially owned more than 5% of the total issued share capital of this company. 18. The equity analyst covering this company, a member of his or her team, or one of their household members has a long common stock position in this company. 19. UBS South Africa (Pty) Limited acts as JSE sponsor to this company. 20. UBS AG, Australia Branch is acting as Adviser to BHP Billiton Ltd on the off-market buy-back and will be receiving fees for acting in this capacity. 21. UBS AG, Australia Branch is acting as financial adviser to BHP Billiton Group Operations Pty Ltd and Mitsubishi Development Pty Ltd on the possible sale of its Gregory Crinum metallurgical coal operations and will receive a fee for acting in this capacity. 22. UBS Limited is acting as manager/co-manager, underwriter, placement or sales agent in regard to an offering of securities of this company/entity or one of its affiliates.
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23. UBS Securities Canada Inc or an affiliate has acted as manager/co-manager, underwriter or placement agent in regard to an offering of securities for this company/entity or one of its affiliates within the past 12 months. 24. The UBS Wealth Management strategist, a member of his or her team, or one of their household members has a long common stock position in this company. 25. UBS Limited is acting as adviser to Diageo in relation to the acquisition of United Spirits. 26. UBS Securities LLC is acting as advisor to Bancolombia on its announced agreement to acquire HSBCs Panama assets. 27. UBS AG is acting as manager/co-manager, underwriter, placement or sales agent in regard to an offering of securities of this company/entity or one of its affiliates. 28. UBS AG is acting as agent on the announced share buy-back programme of Novartis AG 29. Within the past 12 months, UBS Securities Canada Inc or an affiliate has received compensation for investment banking services from this company/entity. 30. A director or an employee of UBS AG, its affiliates or subsidiaries is a director of this company. 31. UBS AG is acting as agent on SGS` announced share buy-back programme. 32. UBS Deutschland AG is currently acting as advisor to Siemens AG 33. UBS Securities LLC is acting as advisor to Sprint Nextel on its announced agreement to sell a majority stake in itself to Softbank. This potentially will include a combination with Clearwire. DISH Network has made an unsolicited offer for Sprint. 34. In Germany, UBS Limited has entered into a contractual arrangement to act as the manager of orders (Designated Sponsor) in the financial instruments of this company. 35. UBS Securities LLC is acting as an advisor to Continental Airlines on its announced agreement to merge with UAL Corp. 36. UBS Limited is acting as agent on Vodafone Group Plcs announced share buyback programme.
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Appendix
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UBS Equity Compass May - EN (1) - 1

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UBS Equity Compass May - EN (1) - 1

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Monthly pointing the way to our favorite equity recommendations

UBS Equity Compass

Japan has awakened

Japanese equities Not too late

US equities Stay overweight

Emerging markets Assume neutral position

UBS Equity Compass

UBS Equity Compass

Japan has awakened

Stefan Schneider European Head of Equity Research UBS CIO WM Research

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UBS CIO WM Research May 2013

UBS Equity Compass

Positive on Japanese equities

Yen weakness supports Japanese equities

Performance of global equity regions In %

Performance of global equity sectors In %

Source: Thomson Reuters, UBS, as of 25 April 2013

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UBS CIO WM Research May 2013

UBS Equity Compass

Equities Less upside potential, more focus on yields

Bonds Corporate hybrids as alternative

Economy Growing slightly

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UBS CIO WM Research May 2013

UBS Equity Compass

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UBS CIO WM Research May 2013

UBS Equity Compass

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UBS CIO WM Research May 2013

UBS Equity Compass

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UBS CIO WM Research May 2013

UBS Equity Compass

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UBS CIO WM Research May 2013

UBS Equity Compass

UBS Equity Compass Asia

UBS Equity Compass Asia

Looking for improvement and growth

Attractive value in Chinese financials

Robust growth in Indonesia

Links to full reports on the research portal

Document links are UBS internal only.

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UBS CIO WM Research May 2013

UBS Equity Compass

Least Preferred Asia ex-Japan

Emerging Europe, Middle East & Africa CEZ, a.s. CZK

Latin America GF Inbursa Industrias CH MXN MXN

Corporacion Inmobiliaria Vesta MXN

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UBS CIO WM Research May 2013

UBS Equity Compass

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UBS CIO WM Research May 2013

UBS Equity Compass

Least Preferred Edenred EUR

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UBS CIO WM Research May 2013