Erste Group Research - Global Strategy Outlook

Ers

Erste Group Research Global Strategy | All Assets | Global 17 January 2012

Global Strategy Q1 2012 The government debt crisis causes sustainable uncertainty. We expect high-yield bonds, equities, and gold to post price increases and envisage an appreciating US dollar and yen.

Source: Erste Group Research

Note: Our estimates are in absolute and not in relamar

Expectations Q1 2012:

Govt. bond yields March 2012Germany (10y) � 2.10US (10y) � 2.10

EUR corporate bond yields Investment Grade �High Yield �

Currencies March 2012USD � 1.27YEN � 99.0CHF � 1.20Gold � USD 1.755

Equity performances March 2012Global � +3%/ +10%Eurozone � +3%/ +10%USA � +3%/ +10%Japan � -3%/ +3%CEE � +3%/ +10%BRICs � +3%/ +10%

Economy: the global economy has been stabilising on low levels in the past three months. As a result, the fears of a massive global recession have subsided somewhat, and we may even see the global trough in the foreseeable future. However, the perspectives should remain very mixed along the various geographic regions. Whereas economic growth in the USA has remained moderately positive, industrial production in the Eurozone indicates an imminent mild recession at the beginning of the year. The emerging countries will see a slowdown in their growth rates, but economic growth will remain clearly positive. Bonds: the Eurozone government debt crisis will remain the dominant topic on the fixed income markets and cause persistent levels of elevated volatility. Due to the prevalent uncertainties, the key-lending rates should remain at their current globally low levels or, where possible, be reduced even further (Eurozone) due to the existing uncertainties and the fragile economic situation. For the longer end (5 to 10Y) we don’t expect a significant increase in yields (USA, Eurozone) in Q1 2012. Currencies: the Eurozone debt crisis and the disappearance of other safe havens lend additional support to the US dollar, which should approach its fair value of EURUSD 1.25. However, possible interest rate cuts by the ECB and Quantitative Easing create risks on both sides of the Atlantic. As long as no economic recovery and no increase in US interest rates are foreseeable, the yen should basically continue to appreciate. Gold should continue to benefit from the fragile environment, the negative real interest rates, and purchases by central banks. Equities: we envisage an increase of the MSCI World index of +3 to +10% in the first quarter of 2012. Equities in the USA, Russia, and Brazil are likely to post the biggest gains. Investor sentiment has been dealt a blow by the massive losses (ex USA) in 2011, which is a good contrary indicator. Many shares have already priced in the fear of a recession. Important leading equity indicators have been going through a turnaround in momentum and are now pointing upward. This is true for the earnings revisions in the USA and partially in Europe, as well as for the US ISM index.

as of Jan. 13th 2012
tive terms. Bond yields and equity ket returns in local currencies. All prices are
te Group Research – Global Strategy Q1 2012 Page 1


Erste Group Research – Global Strategy Q1 2012 Page 2

Contents Investment Strategy Q1 2012................................................................................................... 3 ECONOMICS............................................................................................................................. 4 Global Economy ......................................................................................................................... 4 Eurozone Economy .................................................................................................................... 5 US Economy .............................................................................................................................. 6 CEE Economies ......................................................................................................................... 7 BRIC Economies ........................................................................................................................ 8 BONDS...................................................................................................................................... 9 German Bunds ........................................................................................................................... 9 US Treasuries........................................................................................................................... 10 CEE Government Bonds........................................................................................................... 11 EUR Corporate Bonds .............................................................................................................. 12 CURRENCIES ......................................................................................................................... 13 US Dollar .................................................................................................................................. 13 Technical Analysis US Dollar.................................................................................................... 14 Japanese Yen........................................................................................................................... 15 Swiss Franc.............................................................................................................................. 16 Gold (USD)............................................................................................................................... 17 EQUITIES ................................................................................................................................ 18 Global....................................................................................................................................... 18 Eurozone.................................................................................................................................. 20 United States............................................................................................................................ 21 Japan ....................................................................................................................................... 22 CEE.......................................................................................................................................... 23 BRICs....................................................................................................................................... 24 TABLES & APPENDIX ............................................................................................................ 26 Economic indicators.................................................................................................................. 26 Capital Market Forecasts .......................................................................................................... 27 MSCI Indices - consensus estimates ........................................................................................ 28 Equity recommendations .......................................................................................................... 29 Contacts.................................................................................................................................. 30 Notes........................................................................................................................................ 31 Disclaimer............................................................................................................................... 32

Global Strategy Team Investment Strategy Friedrich Mostböck, CEFA Economics

Global Gudrun Egger, CEFA, Mildred Hager, Stephan LingnauUSA Mildred Hager Eurozone Gudrun Egger, CEFA, Mildred HagerCEE Juraj Kotjan, Birgit NiessnerBRICs Hans Engel, Stephan Lingnau

CurrenciesUS- Dollar Mildred Hager Japanischer Yen Mildred Hager Schweizer Franken Adrian Beck Gold Ronald Stöferle, CMTTechn. Analyse Ronald Stöferle, CMT

BondsUS Mildred Hager Germany Gudrun Egger, CEFA, Mildred Hager CEE Juraj Kotjan, Birgit NiessnerEUR Corporate Bonds Alihan Karadagoglu, Elena Statelov, CEFA

EquitiesGlobal Hans Engel, Stephan Lingnau, Ronald Stöferle, CMTEurope Stephan Lingnau USA Hans Engel Japan Ronald Stöferle, CMTCEE Henning EsskuchenBRICs Hans Engel, Stephan Lingnau

Email: [email protected] numbers: listed in the appendix.



Investment Strategy Q1 2012

Q1 2012 current Mar-12 Jun-12 Sep-12 Dec-12Germany � 1.9 2.1 2.2 2.3 2.4Austria � 3.2 3.1 3.0 2.9 2.8US � 2.0 2.1 2.2 2.4 2.5CEE

Czech Republic � 3.6 4.0 3.9 3.9 4.0Hungary � 9.9 9.4 8.9 8.5 8.2Romania 5 Y � 7.3 7.2 7.2 7.2 7.2

EURCorporate Bonds

Investment Grade �High Yield �

Yields Estimates

10y.

Gov

t.bo

nds

Cor

pora

tes

Source: Erste Group Research estimates

Q1 2012 current Mar-12 Jun-12 Sep-12 Dec-12USD � 1.28 1.27 1.25 1.25 1.25JPY � 98.40 99.0 97.5 97.5 97.5CHF � 1.21 1.20 1.20 1.20 1.20Gold (USD) � 1630.00 1,755 2,000 1,988 2,188CZK � 25.85 25.0 24.2 24.0 24.0HUF � 314.00 305 295 290 285RON � 4.36 4.35 4.34 4.33 4.32

EstimatesCurrencies

Glo

bal

CEE


Estimate SentimentQ1 2012 min max FX Market Profits Value Trend Volume

Global � 3% 10% USD ° ° + + +Europe � 3% 10% EUR ° ° + ° -USA � 3% 10% USD ° + + + +Japan � -3% 3% JPY + - ++ - -CEE � 3% 10% EUR - ° + - +BRICs � 3% 10% lokal - ° + + °Brazil � 3% 10% BRL ° ° + + +Russia � 3% 10% RUB ° + ++ + +India � -3% 3% INR - - -- - +China � -3% 3% CNY ° ° ° ° +

Technical

G3

Emer

ging

Mkt

s.

Equities Fundamentals


Definitions Equity Markets:

EquitiesStrong increase �� +10% ++ very positiveIncrease � +3%/ +10% + positiveUnchanged � -3%/ +3% ° neutralDecline � -10%/ -3% - negativeStrong decline �� -10% -- very negative

Estimate (local currency) View




ECONOMICS

Global Economy

The global economy has stabilized at lower levels in the last few months. Hence, fears about a forthcoming recession have abated somewhat and the trough might even be reached soon. For example, global PMI, which is a leading indicator for the global economy, increased to 53 in December, which points to stronger growth than that seen in the last few months. However, growth prospects are expected to differ across geographical regions. Developed Markets While US growth held up in a moderately positive way so far, the best case scenario visible in the Eurozone is a slowdown (Germany), and the worst case a drastic decline (Italy, Spain) of industrial production, pointing to a forthcoming mild recession overall. Exports seem to be able to contribute, but less strongly than during the now-ended catch up process following the crisis. The perspectives for investments and the labor market (and thus consumption) remain dampened by uncertainty surrounding the Eurozone debt crisis though. In particular, in peripheral Eurozone countries the unemployment rate is still or again on the rise, which is also expected to dampen medium-term inflation. Correspondingly, we expect further rate cuts by the ECB to 0.5%, which seem to be priced in to 2Y yields by now. Financial market stress continues to be visible; on the one hand, peripheral yields remain close to highs, on the other hand, safe haven bonds (Germany, US) are still in high demand. The debt crisis has so far also led to a moderate weakening of the euro across the board. Emerging Markets Despite high economic growth rates, the consumer mood in the most populous developing countries in the world and important markets for exporters is weak. The population in China is 1.4bn and in India 1.2bn. GDP per capita in China stands at a nominal USD 5,200/capita and in India at USD 1,530/capita. In China, consumer confidence fell in November to 97 points. This is also reflected in the not-so-sharply rising retail sales (officially Nov.: +17.3% y/y). As a proportion of GDP, consumption is still falling because other parts of the economy, investments in particular, represent the bulk of growth. The transition from the construction and investment boom in mainland China to a consumer nation in future years is one of the biggest challenges for the central government. We expect that the transition will mean that the high GDP growth rates in recent years (2010: 10.4%, 2011: 9.3%) cannot be achieved. For 2012, the consensus expects a growth of “only” 8.3%. The mood among consumers in India is stable. However, the very positive atmosphere from the years 2007 & 2008 could not be achieved despite high growth rates (GDP 2010: 7.6%, 8.7%: 2011). In particular, the high inflation of 9.1% (Nov.) dampens consumer sentiment. The main driver of inflation are high oil prices (+30% in INR in 2011), which repress growth in the resource-less country. Another driver of inflation is the sharply falling rupee, which has lost in the anticipation of interest rate cuts and weakening economic indicators in 2011 vs. the USD 19% in value. The growth forecasts for India are thus falling. For 2012, the consensus currently expects 7.4%.

Falling growth forecasts

Nov. Dec.USA 50,6 51,6 1,6 1,8 0Eurozone 49,0 48,5 1,5 0,2 ↓Japan 51,9 49,3 -0,5 2,3 0BRICs 50,0 49,5 7,6 ↓ 7,4Weight. ∅ 50,2 49,9 3,8 ↓ 3,8 ↓

PMI GDP (%)11e 12e

Sources: Erste Group estimates, IMF, Consensus Economics, Markit. 2012: forecasts of global GDP growth on sharp decline G20 GDP consensus estimates 2012e:

2,6%

2,8%

3,0%

3,2%

3,4%

3,6%

3,8%

4,0%

01.11

02.11

03.11

04.11

05.11

06.11

07.11

08.11

09.11

10.11

11.11

12.11Source: Consensus Economics, Erste Group Research Global purchase manager index indicates lower industrial production Global PMI & G20 industrial production (y/y):

30

35

40

45

50

55

60

10.01

10.02

10.03

10.04

10.05

10.06

10.07

10.08

10.09

10.10

10.11

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

Global PMIGlobal PMI @ 50Global IP

Source: Datastream, Bloomberg, Erste Group Research

M2 money supply growth remains below 2008 levels Industrialised and emerging countries

0%

5%

10%

15%

20%

25%

01 02 03 04 05 06 07 08 09 10DM (2m avg.) EM (2m avg.)

SSource: Datastream, Erste Group Research



Eurozone Economy

The uncertainty with regard to the future economic development remains substantial due to the fact that the Eurozone government debt crisis is unlikely to be solved in the foreseeable future. Almost all sentiment and leading indicators suggest a weak economic development this year. The Eurozone exports (or net exports, respectively) have finished the first catch-up process after the crisis and should contribute moderately to the GDP in the coming months. Only the slightly weaker euro might lend marginal support to the competitiveness. We expect the export-oriented core countries (e.g. Germany) to grow substantially faster than the peripheral countries of the Eurozone.

Germany: moderate contribution of exports to GDP Germany: exports y/y (%) and order intake y/y

Germany: investments should stagnate Real investments y/y (%) vs. IFO business climate

-20,00%

-15,00%

-10,00%

-5,00%

0,00%

5,00%

10,00%

15,00%

20,00%

Q1

2000

Q4

2000

Q3

2001

Q2

2002

Q1

2003

Q4

2003

Q3

2004

Q2

2005

Q1

2006

Q4

2006

Q3

2007

Q2

2008

Q1

2009

Q4

2009

Q3

2010

Q2

2011

Q1

2012

Q4

2012

-0,4

-0,3

-0,2

-0,1

0

0,1

0,2

0,3

DE Exp y/y Order intake abroad

-15,00%

-10,00%

-5,00%

0,00%

5,00%

10,00%

15,00%

Q1

2000

Q4

2000

Q3

2001

Q2

2002

Q1

2003

Q4

2003

Q3

2004

Q2

2005

Q1

2006

Q4

2006

Q3

2007

Q2

2008

Q1

2009

Q4

2009

Q3

2010

Q2

2011

Q1

2012

Q4

2012

82

87

92

97

102

107

112

117

DE Inv y/y IFO

Sources: Datastream, Erste Group Research Sources: Datastream, Erste Group Research

The capacity utilisation in the corporate sector has returned to its historical average. However, companies remain cautious about capex decisions in spite of their improved financial situation and the low interest rate environment, given that the uncertainty about the robustness of consumer demand is depressing the business climate. In line with this situation, the risks of a “jobless recovery” have further manifested, and we expect the unemployment rate to remain high until 2013. Due to the fact that the labour market has not recovered yet and in view of the fallen consumer confidence, private consumption should remain lacklustre in the foreseeable future and contribute only marginally as stabilising factor. Our Eurozone GDP forecast of +0.2% for 2012 is based on the fact that we should see a slow rebuilding of confidence in the second half of 2012 due to the implementation of the agreed measures and further steps aimed at solving the government debt crisis. After a mild recession at the beginning of the year we expect a moderate recovery in the second half; we do, however, still see the risk of the problems in connection with the Eurozone debt crisis deteriorating. In this case we could not rule out a more significant economic slump. The weak growth should also exert downward pressure on inflation in the medium term. Commodity prices (e.g. oil) and VAT increases might constitute distorting factors; we expect an average inflation of 1.8% for 2012.

Uncertainty depresses outlook

Net exports should remain relatively robust

Investments stagnate, private consumption dampened

Zero growth and low inflation



US Economy

In the US our expectations of moderately positive economic growth have been confirmed, with the risks clearly improving. Almost all sentiment indicators (consumer confidence, ISM, NFIB) have picked up from their September lows, causing the risk of a recession to decrease drastically. Since 2008 we have seen a slight shift in growth drivers in the USA. Whereas prior to that year private consumption had been dominating GDP growth for decades, the following graph illustrates the fact that in the catch-up process after the crisis consumption was contributing less (in line with an increase in the savings ratio) while investments were lending significant support to growth.

Growth shifting from consumption to investments Contributions to GDP growth q/q, annualised; before and after the crisis

-1.00-0.50

0.000.50

1.001.50

2.002.50

3.003.50

4.00

MV 1980-89 MV 1990-99 MV 2000-06 MV 2007-11 MV 2009-11

Cons Non-res Invest Res Invest Net exp Govt Invent Sources: Bloomberg, Erste Group Research This is in tune with the rather more robust situation of large companies, which benefit from global demand, and the at the same time weak demand from US households, which is burdening the small- and medium-sized enterprises in the USA. This results in a mutually dampening effect of housing market, labour market, and consumption, which should remain in place for a while. As a result we expect the economic growth in the USA to remain subdued, but still moderately positive – not the least due to investments – in the foreseeable future. However, this growth level will probably fall short of what would be needed to facilitate an imminent recovery on the labour market. While the number of newly created jobs in Q4 was substantially up again, the extent is still below the level required to sustainably reduce the unemployment rate (N.B. the latter one has recently fallen mainly as a result of unemployed leaving the labour force). We continue to expect an only moderate increase in newly created jobs, which should result in the unemployment rate remaining close to 9%. This also translates into subdued inflation expectations, which could marginally support the purchase power of the households.

Only once new growth impulses have emerged in the US (and the shake-out on the housing market has come to an end) should the labour market and consumption be able to improve again and the USA return to a path of more robust growth. But we do not envisage this scenario for the coming year.



CEE Economies

Economic growth declined in the third quarter in the CEE region. Romania and Ukraine were the two exceptions after a good crop. Czech Republic: due to the close industrial integration with Germany the Czech Republic has also been affected by the economic decline. Real economic growth fell to 1.2% y/y in the third quarter. Although the industrial production surprisingly increased by 5.4% y/y in November, this was an upward outlier, which was not supported by the (falling) trend of the purchasing manager index. While the Czech economy grew by 1.9% in 2011, growth is expected to slow down to 1% in 2012. In other words, we expect a gradual and mild recession for the Czech Republic, which on the demand side can be explained by falling exports and pressure on private consumption. The households can feel the austerity measures of the government, which depresses demand and also dampens inflation pressure. That said, the Consumer Price Index in 2012 will increase by 2.3%, given that the value-added tax and the administered prices have been raised. The government is still keen on following the principle of fiscal prudence, and the budget deficit expected for 2012 is 4%. The monetary policy has reacted to the economic situation by keeping the key-lending rate steady at 0.75%. A monetary loosening is not in sight given the risks involved for the currency and the relatively high expected inflation. And it is also impossible to raise the key-lending rate in an environment of economic weakening. Hungary: Hungary has been headline material because on the one hand the country has turned to multilateral institutions in order to ensure external financing, on the other hand it has decided to go down an unorthodox road as far as economic policies are concerned. At the turn of the year the government passed a number of laws, with the most important one pruning the independence of the central bank. These laws are at odds with the international negotiations, and it seems the journey to an agreement is a long and arduous one. For the real economy this uncertainty means negative growth in 2012, a budget deficit of 3.1%, and an increase in unemployment to above 11%. The central bank has increased the key-lending rate to 7% and will continue raising the rate in the first quarter. We expect high volatilities for the capital market, which at the moment charges considerable premiums for Hungarian assets, for the first quarter of the year. For this period of time, the financing of the government debt is safe; it is only after the first quarter that things may turn critical. In the most likely scenario Hungary will reach a new multilateral agreement in the second quarter. Romania: Romania, too, is facing a challenging 2012 amid economic growth declining to 1.2%. But the fiscal adjustment and the latest agreement with the IMF will contain the impact. The central bank even afforded a cut in key-lending rates to 5.75%. The forecast puts this year’s budget deficit at 3.4% in terms of GDP, which would still leave the government with room for stimulatory measures. Given that Romania wants to join the bilateral EU treaties about setting up a debt brake, we do not expect a loose budget policy in spite of the elections to be held in the second half of the year.

Industrial production y/y

-10-505

1015

Cro

atia

Cze

chR

ep.

Hun

gary

Pol

and

Rom

ania

Ser

bia

Slo

vaki

a

Turk

ey

Ukr

aine

Eur

oA

rea

Aug-2011 Sep-2011 Oct-2011 Nov.11

Sources: Bloomberg

Inflation y/y

02468

1012

Austria

Croatia

Czech

Rep.

Hungary

Poland

Rom

ania

Slovakia

Turkey

Ukraine

Euro

Area

Jul-2011 Aug-2011 Sep-2011 Oct-2011 Nov-2011

Source: Bloomberg



BRIC Economies

The purchase manager indices have increased in most of the BRIC countries. They continue to signal an economic expansion for Russia and India. Brazil: the central bank has cut its key-lending rate in the past months from 12.5% to currently 11%. An essential condition for these moves was the decline in inflation and the stabilisation of the Brazilian real. After an inflation rate of 6.5% in 2011, the Brazilian central bank now expects a decline in inflation to 4.7%. Consumption has remained robust in what is the second-largest emerging market economy behind China. The credit demand of the households has been on the rise. This development is driven by economic growth and the resulting increase in household income. Foreign direct investment has also increased, as has the trade surplus. The environment required for economic growth of about 3.5% in 2012 remains intact. Russia: the Russian economy is still expanding. This positive development is being supported by the high energy prices and a falling inflation rate, which has recently decreased to 6.1%, having set a new high at 9.6% in the first half of 2011. The Russian central bank cut its key-lending rates from 8.25% to 8% at the end of the year. Private consumption has been strong, recording double-digit growth rates (+15.8% y/y). The purchase manager indices are signalling an economic expansion, which will probably generate a GDP growth rate of 3.5% in 2012. We consider this consensus forecast as realistic, given that the oil price, an important factor, has also displayed a slightly rising tendency. India: the high inflation rate of 9.4% remains a crucial economic problem. The dependence on imports especially in the energy sector slows down the economic expansion, which, at an expected growth of +7.5%, is above average. Given that the Indian rupee is still weak, the inflation momentum will subside in India only at a time lag to the other BRIC countries. India requires capital imports to offset its balance of trade deficit. In order to facilitate these, the government decided to allow foreigners direct purchases of equities. China: economy: The leading indicators in China are weak. December PMI data showed a continued deterioration in manufacturing sector operating conditions. The index averaged its lowest quarterly reading since Q1 2009 and external demand is declining as new export business fell in December. With now at 8.3% the consensus estimate for 2012 GDP growth has come down by 0.7 pp over the last twelve months. We believe the drop in expected growth from 9.5% in 2011 will even be larger given the following current headwinds for the Chinese economy. So the growth story of China that was the main driver of global GDP growth (18% of world GDP growth in 2010) is coming to an end as massive credit expansion like in the last years is economically not possible anymore.

1 The CRB index contains all important commodity classes such as oil, natural gas, primary metals, meat, and agricultural commodities.

PMIs & GDP forecasts

Oct Nov Dec 11e 12eBrazil 46.5 48.7 49.1 3.4 ↓ 3.5 ↓Russia 50.4 52.6 51.6 3.6 ↓ 3.5India 52.0 51.0 54.2 7.8 7.5 ↓China 51.0 47.7 48.7 9.5 8.3BRICs 50.6 49.1 50.3 7.7 7.0

PMIs (Manu.) GDP (%)

Sources: Consensus Economics, Markit.

Ifo economic cycle signals downturn in the BRIC countries Ifo indices Q3 2010- Q4 2011:

Sources: Datastream, Erste Group Research

Commodity prices falling in China and Russia – interest rate cuts feasible CRB index1, %y/y, local currency:


BRICs with room for interest rate cuts Key lending rates in %:



Erste Group Research – Global Strategy Q1 20

Yield estimate Q1 2012BONDS

� 2.10% (10y)

Taylor rule indicates low interest rateErste Group Research Taylor rule vs. inforecast (%)

-3-2-101234567

Jän.

00

Jän.

01

Jän.

02

Jän.

03

Jän.

04

Jän.

05

Jän.

06

Jän.

07

Jän.

08

Jän.

09

Jän.

10

Taylor Rule ECB mrr, Erste Grou


G
German Bunds erman Bunds
12 Page 9

Within the context of the debt crisis the economic outlook in the Eurozone – above all, the labour market – has taken a rapid turn for the worse. This situation causes downward pressure on inflation and consequently on our interest outlook for the Eurozone. On the basis of a Taylor rule and taking into account our latest projections for unemployment and inflation, we expect the ECB to cut its interest rates relatively quickly to 0.5% and to maintain them at that level until 2014. s until 2014 terest rate

Moderate yield increases until year-end Eurozone benchmark yield (forecast Germany 10Y) in %

Jän.

11

Jän.

12

Jän.

13

Jän.

14

Jän.

15

p Forecast

0

0,5

1

1,5

2

2,5

2 3 4 5 6 7 8 9 10

Current Mar. 12 Jun.12 Sep.12 Dec.12


The latest ECB meetings did not only bring the expected interest rate cut, but also signalled possible further cuts in the foreseeable future. Firstly, M. Draghi pointed out “substantial downside risks for the economy” emanating from “intensified strains on the financial markets” in connection with the Eurozone debt crisis. And secondly, the ECB staff projections for the 2013 inflation rate average a value of 1.5%, which is clearly below the target rate of close to/below 2%. On top of that we also missed the usually expressed expectation that inflation would be “in line with price stability” in the medium term. The statement by the ECB therefore constitutes further support for imminent interest rate cuts. In addition, in case of further downside risks to inflation (e.g. in case of a stronger recession) the ECB might start seeing deflationary risks once the lower barrier of the zero-interest rate (at 0.5%) has been reached. The central bank might then try to create a more expansive monetary framework by purchasing bonds like the Fed (in order to lower the long-term interest rates). And lastly, our revised forecast for the key-lending rates also leads us to lower yield expectations, especially at the shorter end. Interest rate cuts followed by extremely slow increases from 2014 onwards imply even more moderate yield increases than hitherto expected (N.B. we expect 2.4% for the 10Y German government bonds at year-end) and an only marginal steepening and bending of the curve in 2012. Therefore the persistent Eurozone government debt crisis should continue to create keen demand for the German government bonds, which are regarded as safe haven.



Yield estimate Q1 2012US Treasuries � 2.10% (10y)

The devil has recently been in the details of the US monetary policy. Since the announcement of Operation Twist, the Fed has not taken any further monetary actions, and so far there are no clues with regard to potential further purchases either. We believe that for example signs of further MBS purchases, if any, could only emerge in the wake of the January meeting, with the committee having been newly formed. That said, the central bank announced in the minutes of its December meeting that from January onwards the Open Market Committee should not only publish the economic projections, but also the interest rate projections (i.e. the expectation of the first interest rate hike) of its members. In addition, an assessment of how long the volume of securities would be maintained on the current level should be included, which could also be used to step up communication in case of further purchases. We believe that it is possible for the expected time of the first increase in the Fed funds rate (mid-2013) to be pushed back further. Together with a statement to the effect that the securities would be held for longer, this could continue to depress yields. While basically the expected improvement of the situation of the real economy should cause yields to rise, we think that the Eurozone and the purchases by the Fed will remain the dominant topics. In this context it is also remarkable that, according to Bloomberg, the US Treasuries were the top-performing asset class in 2011 (+17%). We continue to expect only very moderate yield increases. In the first half of 2012, the uncertainties about the Eurozone and the purchases by the Fed within the framework of Operation Twist should keep Treasury yields particularly low. Only moderate yield increases expected because of Eurozone and Fed Yield structure curve and forecast

0

0.5

1

1.5

2

2.5

3

2y 3y 5y 7y 10y

current 12-Mar 12-Jun 12-Sep Dec 12 Sources: Bloomberg, Erste Group Research


Erste Group Research – Global Strategy Q1

Yield estimates Q1 2012CEE Government Bonds

� 4.00% (10y)
Tschechische Republik Czech Republic
2012 Page 11

Hungary � 9.40% (10y)Romania � 7.20% (5y)

Government bonds in Eastern Europe currently suffer from the contagion effect of the debt crisis in the Eurozone and the events in Hungary. Both issues have had a negative effect on investor sentiment. First of all the high degree of uncertainty manifests in the volatility of the exchange rates in the region, where some currencies such as the Romanian leu are propped up while others float freely. The Hungarian forint recorded the most drastic depreciation. This can be explained by the erratic economic policy of the government, which overcompensates last year’s budget surplus and the current account surplus. That said, we can see upside potential here too, should an agreement with the IMF and the EU be reached. The currencies of the neighbouring countries will have to emulate these movements to a certain degree. The high risk aversion of the investors is also expressed by the spreads of credit default swaps, with the highest ones in central Europe again being charged for Hungarian risk. The influence of the domestic fiscal policy, the risk of contagion effects through the market, and the assurance of an IMF agreement manifest in the yields of the government bonds. For Romania, for example, we expect stable yields, given that the fiscal policy is conservative and the IMF serves as anchor for the domestic economic policy. The Czech Republic is standing on its own feet and also managed to convince investors of its very good fundamental data, which means we do not expect any upward spikes of yields here either. Hungary on the other hand is reaping the effects of its economic policy, although yields might come down if the government were to take measures on the market that were geared towards building trust.



EUR Corporate Bonds Yield estimate Q1 2012Investment Grade �High Yield �

The government debt crisis will continue to accompany the events on the credit market in the first quarter of 2012. Given the fact that there will be no “big solution” on the government debt front, the markets might gradually start getting to grips with a process that is pretty much a work in progress. That said, every delay in negotiations contains the risk of a setback on the markets. The EUR corporate bond market will also remain dominated by the global economy, seeing that the numerous revisions of forecasts have created an uncertain environment for the economic development. The low interest rates in Europe – currently 1% – should support the performance of corporate bonds. Signs indicating further interest rate cuts also benefit corporate bonds as investment class, since investors are looking for higher yields. We regard the increase in the capital requirements for European banks as favourable towards corporate bonds as well, as they could help accelerate the growth of the EUR corporate bond market further. Banks have a strong incentive to divert their corporate clients onto the capital markets for (re)financing purposes in order to reduce their risk-weighted assets and to be able to comply with the stepped-up capital requirements. At the same time pension funds and insurance companies have reduced their exposure to government bonds in favour of corporate bonds. The credit profiles of the European companies are stable, and the companies are in a much better situation in terms of liquidity than they were in 2008. According to Moody’s 80% of the global sectors currently command a stable outlook (12-18M), and more than 90% of the European investment grade companies hold a solid liquidity position (6M). This should prevent the spreads of investment grade corporate bonds from widening excessively. We expect a good liquidity position to be a high-priority goal in 2012 as well, and regard the bonds of companies with good ratings and a solid business model (geographic diversification and broad range of products) as interesting investment opportunities. The default rate is expected to remain stable on low levels in the coming year in Europe. The default rate has fallen substantially since the end of 2009 in the speculative segment. The rate is expected to close 2012 at low levels (2.4%). However, the uncertainty associated with high-yield bonds should remain for the full year 2012 due to the expected economic development, the more difficult financing conditions, the capitalisation of the banks, and the divestment of risky asset classes by investors. Declining recession fears in the light of better business climate indicators (e.g. ifo index) and the recently successful placement of sovereign bonds in the eurozone point to a slightly better market sentiment. Therefore, we expect a better environment for high yields in 1Q 2012.

Investment grade bonds topping performance list in 2011 Performance table:

Sources: JPMorgan Credit Index, Erste Group Research, Bloomberg

2008 2009 2010 2011Invest. Grade 3.0% 11.8% 4.1% 5.8%High Yield -34.9% 73.4% 14.8% 1.7%Supras & Sovs 6.6% 7.4% 3.7% 4.7%ATX Index -61.2% 42.5% 16.4% -34.9%DAX Index -40.4% 23.8% 16.1% -14.7%

Sideways movement of the speculative default rate expected in Europe

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Actual Baseline_ForecastPessimistic_Forecast Optimistic_Forecast

Source: Moody’s



Estimate Q1 2012CURRENCIES

� 1.27
US Dollar US Dollar
2012 Page 13

The long-lasting discussion about the dollar’s status as a safe haven, which is regularly contested, entered a new stage by mid-2011. By then, the Eurozone debt crisis also started to impact the EURUSD exchange rate (which prior to that was not the case). Due to persistently better growth perspectives in the US and a lack of alternatives, we expect the dollar to retain this safe haven status throughout 2012 as well. However, it is also worth mentioning that the quantitative extent remains limited.

As a consequence of the debt crisis and corresponding downside risks to the Eurozone economy and inflation, we also expect the ECB to expand their monetary policy stance more than the US Fed in 2012, which is euro-negative. Despite the Fed’s ongoing Operation Twist and possible forthcoming MBS purchases, the ECB’s very generous liquidity provision, expected rate cuts and possible further easing is likely to be of greater importance. This should also impact the interest rate differential, which should support the dollar on a relative basis. Finally, long-term fundamentals (in particular, purchasing power parity, but also a still narrower trade balance deficit of the US and especially the dollar’s status as the world’s first reserve currency) also point to a stronger dollar, so that we expect appreciation to EURUSD 1.25 (perhaps even beyond) throughout the year.

Dollar: „safe haven“ for Eurozone?

1

1.1

1.2

1.3

1.4

1.5

1.6

1.7

03.0

1.20

05

03.0

7.20

05

03.0

1.20

06

03.0

7.20

06

03.0

1.20

07

03.0

7.20

07

03.0

1.20

08

03.0

7.20

08

03.0

1.20

09

03.0

7.20

09

03.0

1.20

10

03.0

7.20

10

03.0

1.20

11

03.0

7.20

11

-2.5

2.5

7.5

12.5

17.5

EURUSD 10Y Spread gips-DE, rhs invertedSource: Bloomberg, Erste Group Research



Estimate Q1 2012Technical Analysis US Dollar �

Further US dollar strength expected – sell the euro rallies! EUR/USD in the past four years:

The US dollar has recently shown enormous strength relative to the euro. The most important support lines of the euro, i.e. the 30/60 and 200-day lines, failed to hold. On top of that, the MACD generated two sell signals by on the one hand dipping below the zero line and on the other hand crossing the signal line. Numerous other indicators and oscillators such as for example the RSI, the on-balance volume, and the Japanese ichimoku technique confirm the expected sustainable strength of the USD trend. After the (psychologically) important support of 1.30 has been broken, the next target is 1.27 (76.4% Fibonacci retracement), and after that the area around 1.25. From a 1Y perspective we regard a trend acceleration to 1.188 (June 2010 low) as possible.



Estimate Q1 2012� 99
Japanese Yen Japanese Yen
2012 Page 15

The Japanese economy has been in deflation for ten years now. Whereas falling prices dampen the growth prospects in the long run, they support the purchase power of a currency (i.e. the yen) at the same time. In relative terms, i.e. in comparison with other currencies, this is reflected in a stronger fair value (the calculation of the fair value is based on the idea that goods should cost the same no matter where. Although it is only possible to get an approximation, foreign exchange rates generally tend to return to the fair value over time). We expect this trend to continue from currently USDJPY 78 and EURJPY 97.5, respectively, which should also support the yen. Purchase power parities support yen from a fundamental perspective

0

50

100

150

200

250

300

350

400

Jän.

70

Jän.

73

Jän.

76

Jän.

79

Jän.

82

Jän.

85

Jän.

88

Jän.

91

Jän.

94

Jän.

97

Jän.

00

Jän.

03

Jän.

06

Jän.

09USDJPY Fair value (PPI JP/PPI US indexed on 1990 USDJPY)

Sources: Bloomberg, Erste Group Research The deflationary environment in Japan has also led to a zero-interest-rate policy, which means that the dynamics of the exchange rate of the yen depend entirely on the economic development and thus the interest rates overseas. The yen could therefore appreciate further in case of a monetary loosening by the Fed and/or the ECB; at any rate, it should remain on strong levels as long as the end of the zero-interest-rate policy in the Eurozone/the USA is not in sight. Only when another monetary turnaround (i.e. interest rate increases) become foreseeable in said regions, should the yen depreciate again, which we do not expect for 2012.



Estimate Q1 2012� 1.20
Swiss Franc Swiss Franc
2012 Page 16

From a fundamental point of view the Swiss franc has been exposed to appreciation pressure for a while; this pressure has intensified from summer 2011 onwards amid the escalation of the debt crisis in the Eurozone, which triggered safe-haven inflows into the franc. In reaction, the SNB took steps against the strong franc and set a minimum exchange rate in order to counteract the risk of deflation. Along with a lack of time available to the Swiss economy to adjust to the quickly appreciating franc, the deterioration of the global economic outlook contains a major downside risk for the development of prices and the economy in Switzerland. After economic growth of +1.8% in 2011, the KOF Swiss Economic Institute expects only +0.2% in its economic forecast for 2012. Furthermore, inflation has been negative since October 2011 (-0.7% in December 2011). The development of the Eurozone debt crisis is the most important criterion for the future exchange rate development of the Swiss franc. In the absence of any solution on this front, we expect the appreciation pressure on the franc to last, which the SNB will probably continue to intervene against in order to support the Swiss economy and to counteract the downward pressure on prices. In spite of the resignation of central bank President Hildebrand in January we believe that the SNB will continue to be able to credibly assert the minimum exchange rate of EURCHF 1.20, as long as the debt crisis does not escalate. We therefore expect the EURCHF rate to remain close to the minimum threshold in the short to medium term. Should the Eurozone government debt crisis put more pressure on the development of prices and the economy in Switzerland, the SNB could consider stepping up its interventions. We thus cannot rule out a possible future increase of the minimum exchange rate, not the least in view of the lack of alternatives, given the current Libor target of zero. This would be particularly relevant to a situation where external demand declined more significantly than expected. However, in case of an escalation of the debt crisis, it is uncertain how long the SNB would be willing to defend its minimum exchange rate by buying foreign exchange. Movements close to 1.20 since the introduction of the minimum exchange rate EURCHF exchange rate, measure of 6 September 2011

1

1,05

1,1

1,15

1,2

1,25

1,3

1,35

04/2

011

05/2

011

06/2

011

07/2

011

08/2

011

09/2

011

10/2

011

11/2

011

12/2

011

Source: Datastream, Erste Group Research



Estimate Q1 2012� 1,755

Correction of gold and silver continues, but is coming to an end

Gold (USD) Gold (USD)

2012 Page 17

Both gold and silver continued to correct in the fourth quarter of 2011, albeit at a slower momentum. Gold has lost 2.6% in the past three months, whereas silver has shed 7.5%. Even though the correction has caused some technical damage in the past weeks, it is easy to put the currently prevalent pessimism into perspective by assuming a medium to long-term perspective. Gold closed the year with the eleventh consecutive positive annual performance. On a year-on-year basis, gold gained 13.5% in USD and 18% in EUR, respectively. This is quite respectable, not only in relative, but also in absolute terms. And in addition it shows that we have definitely not seen the parabolic trend acceleration yet, which we expect for the end of the trend. It seems that in the short run we have not quite made it through the correction yet. Most of the technical indicators are still slightly negative. However, the MACD has already generated a positive divergence, which might soon turn into a buy signal. The sentiment is clearly positive. Some sentiment indicators are now at their lowest levels since 2008, which from a contrarian point of view is highly positive. Even though the vehemence of the sell-off came as a surprise, we believe that this was only a correction representing part of an intact upward trend. As the following chart illustrates, such corrective phases are normal and even healthy for the development of prices in the long run. Bull market still intact Gold price in USD and EUR since 2000:

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2002

2002

2003

2004

2005

2005

2006

2007

2008

2008

2009

2010

2011

2011

Gol

din

USD

200

400

600

800

1000

1200

1400

1600G

old

inEU

R

Gold in USDGold in EUR

Sources: Datastream, Erste Group Research The essential factors of the upward trend remain unchanged. The negative real interest rates around the globe, the fragile state the financial markets are in, and the soaring scepticism with regard to uncovered paper currencies should continue to support the gold price. We stick to our positive outlook and expect the gold price to reach USD 2,000 by July 2012 as well as to exceed the inflation-adjusted all-time-high of USD 2,300/ounce in the long run.



Estimate Q1 2012EQUITIES Global � +3% to +10%

Sentiment: the economic data reported in the past months were overall better than had been expected. This is illustrated by the Economic Surprise index, which, when the market had bottomed out last quarter, quickly moved on to positive terrain. This index is a leading indicator for the global development of equity markets and currently shows values that permit a positive assessment of equities for the coming months. Companies: the majority of earnings revisions remain negative both in the developed markets (USA, Europe, Japan) and in the emerging markets. The EPS revision ratios are negative across all regions. Within the BRIC countries, the countries producing commodities and energy, Russia and Brazil, look comparatively more favourable than India and China. Even if at the moment the revision ratios largely indicate weakening earnings in the regions, the negative trend of the past months has stabilised on aggregate and even slightly picked up. Valuation: The MSCI global equity index currently offers a calculatory dividend yield of close to 3% and is fairly valued at a PE of 12.8x. Relative to the government bonds of the developed markets, which pay only low yields even at relatively good ratings, equities are definitely attractive. We expect the dividend aspect of equities to gain relevance among many investors in the next few years. This asset class should facilitate positive real yields due to the solid shape most companies are in. Technical analysis: our volume and volatility analysis shows that the technical situation on the equity markets continued to improve slightly in the past quarter. The fact that the volatilities of the main indices S&P 500 and DAX have come down lends support to the future development. In some indices the volatilities of the individual shares were largely down as well (e.g. S&P 500). The following table illustrates the fact that the short-term on-balance indicators (PVI 20 weeks) are traded above the medium-term ones (40 weeks) again. This means that one of the most important prerequisites for a further increase of the global equity markets is intact. In this comparison, the US equity market currently looks the most attractive (PVI short: 53.1), whereas India is ranked last (PVI short: 44.1; below the medium-term one, which is at 47.7). Volume and volatility analysis

PVI short PVI medium PVI long20 weeks 40 weeks 120 weeks Equities Index

Eurozone 47.5 40.2 46.8 Increase DecreaseUSA 53.1 43.7 48.4 Decrease DecreaseJapan 46.1 42.2 46.0 Increase IncreaseCEE 46.5 38.5 49.2 Decrease DecreaseBrazil 44.5 36.5 39.5 Increase IncreaseRussia 44.9 38.1 45.7 Decrease IncreaseIndia 44.4 47.7 57.3 Increase IncreaseChina 47.1 43.8 49.9 Increase Increase

Volatility

Sources: Erste Group Research

Performance overview:

3m 2012 PE DYNorth America 15.8 3.8 15.1 2.2Europe 8.4 1.2 10.6 4.2Japan 4.0 2.0 14.4 2.7EM Asia 13.1 2.9 12.0 2.8EM Europe 10.8 3.6 6.7 3.1EM Lat. Am. 15.6 4.6 11.7 3.2World 12.6 3.0 13.1 2.9

Perf. EUR (%) Valuation


Economic Surprise index & MSCI World:


Earnings revisions in the USA, the Eurozone, and Japan negative Earnings revisions (FY1 & FY2):


Negative earnings revisions also in all BRIC countries Earnings revisions (FY1 & FY2):

Global



MSCI AC World index: determinants of the Q1 2012 performance Performance determinants for the MSCI AC World Index

Factor � Forecast Q1 2012 InfluenceBullish (1) Company earnings increase

Earnings revisions are negative, but showing an increasing trend Improvement of earnings forecasts due to low interest rates and the end of the stock depletion cycle

(2) Economic data above expectationsGlobal economic data above expectations (surprise index). US ISM index 53.9 points & order intake/inventories rising sharply. Eurozone: leading indicators slightly improved (Markit EMI Composite in Germany on 4M high, in France on 3M high, back at/above 50 points)

CPI falling on a y/y basis. ECB interest rate cut to 50bps in the first half of 2012. No recession in the Eurozone. US ISM Index will at least remain stable above 50 points. USA GDP growth of 1.6% in 2012.

(3) BRICs interest rate cuts Second half 2011: Brazil - 3 rate cuts (150bps) since August 2011 to 11%. Russia - one cut of 25bps to 8.0%. China - bank reserve ratio cut from 21.5% to 21.0%. India: inflation still high in spite of weakess in economic growth.

Brazil, Russia & China - interest rate cuts of 25-50bps in the first half of 2012. Equities gain in attractiveness relative to bonds; rising interest rate curve. Exports are up/stable because of depreciating exchange rate.

(3) Interventionen by central banksThe balance sheet total of the ECB and the Fed are increasing. ECB and Fed provide banks with unlimited liquidity.

Likelihood of QE III in the USA medium to high. Balance sheet total of the ECB continuously rising

(4) Equities more attractive than government bondsAt a dividend yield of 2.94% (MSCI AC World), equities are more attractive than government bonds.

Companies are holding large cash reserves. Low capex => higher probability of rising dividends.

(5) SeasonalityRisk appetite historically higher at the beginning of the year. Falling volatilities.

Cyclical sectors tend to outperform the market in the first half of the year, as historical data suggest.

Bearish (1) Eurozone debt crisisRefinancing needs of PIIGS countries in Q1 2012: EUR 194bn. Upward trend of government bond yields in 2011 (Ireland being the exception).

Technical analysis of the yields of Italy and Spain suggests further increases or stabilisation at high levels. At 18%, the financial industry commands the biggest sector weighting in the MSCI World index, i.e. strong influence on the overall performance of the index.

(2) Oil price increaseUpward trend in the oil price in Q4: WTI +27%, Brent Q4: +2.4%. Rising risk of a conflict in the Middle East. Increasing demand in the emerging markets.

A possible blockade of the Strait of Hormuz (Iran) would trigger a massive (short-term) price increase. The technical upward trend is intact. In the EU and USA the money supply is rising, triggering a flight to real goods; this would rule out interest rate cuts.

(3) China's growth on the declineChina's economic growth contributed 18% of total global GDP growth in 2010. PMI in China below 50 points, order intake falling. Momentum of exports and industrial production decreasing. House prices falling, sales volume of houses sharply declining.

GDP growth of 8.3% (consensus estimate) in 2012 clearly below 2011 (9.5%). More restrictive lending and an increasing number of defaults because of falling house prices and unprofitable public investments. Exports to the EU and USA slightly declining.

(4) Governmental repression of equitiesItaly: new capital tax discriminates against equities relative to government bonds. France: the government transfers EUR 36bn from the pension fund and cuts the former weighting of 40% of equities in the fund.

Governments will put equities at a disadvantage vis-à-vis bonds by imposing new or higher taxes. Governments have high need of refinancing and legislative power.

Medium

Low

High

Medium

High

High

Medium

Low

Medium

High


Outlook: The global equity markets already anticipated last year the economic slowdown in 2012. As a result of the decrease in volatilities of important main indices and many individual shares the amount of capital invested in equities has picked up again substantially. That process should continue throughout this quarter, providing one important condition for a continued increase of the MSCI World equity index. The valuation of the equities remains moderate and is attractive particularly in comparison with bonds. We expect the MSCI World index to rise by 3 to 10% in Q1. The established markets are currently more attractive than the emerging ones. The main risk factor of our positive return forecast is an increase in the oil price as a result of a possible deterioration of the political situation in the Middle East.



Estimate Q1 2012� +3% to +10%

Increase in money supply stabilising in the wake of ECB MSCI Europe (y/y) & Eurozone M1 (y/y):

Sources: Datastream, Erste Group Research Earnings revisions showing turnaround EPS revision ratio MSCI Europe (exclusive of Eurozone financials):


Margins falling EBITDA margin MSCI Europe (exclusive of Eurozone financials):


Eurozone Eurozone

2012 Page 20

Sentiment: the purchase manager indices in Europe were serving as good leading indicator of share prices in Europe in 2011. Back then they indicated a falling trend as early as in Q1; currently they are stabilising on lower levels. The Eurozone Composite index (services) set a 3-months high in December at 48.3 points (November: 47.0). The divergence in the Eurozone continues: Germany (51.3) and France (50.0) set the highest values, whereas Italy (44.2) and Spain (42.1) remained weak. The important component of order intake was down, but the fifth consecutive decline was less significant than the previous one in November. While Germany and France reported only minor losses, Italy and Spain incurred yet again substantial falls. We expect the first (slight) stabilisation of the index to come with a positive effect on the European equity market. On top of that, the ECB and the Fed were supporting the banks in Europe with unlimited liquidity. The money supply growth of M1 in the Eurozone, which shows a significant correlation with the price changes on the share markets, is currently lending additional support to equities. Fundamentals/valuations: the consensus (MSCI Europe Consensus) expects an increase in EPS growth rates of 8.2% for 2012, after 2.2% in 2011. While the earnings revisions for 2012 are negative, the momentum of the revisions has turned positive. This trend also manifested in 2009, correlating strongly with the upward movement of the MSCI Europe in 2009/10. In absolute terms, however, one has to admit that at 8.2%, earnings growth is very subdued and also largely feeding off the base effect of 2011. In addition, the EBITDA margin of the European companies (except banks, insurance companies, and property companies) expected in twelve months from now shows a falling trend. MSCI Europe industrial sectors:

Market Weight DY P/BCap. (%) (%) (x)

Industry Group (bn EUR) Index 1M 3M FY0 FY0 FY0 FY1 FY1 FY2 abs. 1M 3MMaterials 468 10 2,9 11,3 2,8 1,4 10,9 8,9 23,8 2,6 -2,5 � �Industrials 507 11 3,8 11,0 3,4 1,9 12,5 12,0 4,2 7,4 -1,2 � �

Consumer Discr. 388 8 1,5 10,1 3,1 1,7 12,4 10,7 15,7 6,4 -1,4 � �Consumer Staples 681 14 5,2 10,1 3,2 3,1 15,8 15,4 2,9 9,3 -0,2 � �

Technology 139 3 0,1 5,5 3,0 2,1 13,5 12,9 4,8 -4,0 -0,4 � �Telecom 333 7 0,5 3,3 7,3 1,5 9,0 9,5 -5,6 3,6 -1,5 � �

Health Care 587 12 9,2 14,1 3,7 3,1 11,5 11,3 1,4 1,9 -1,1 � �Utilities 232 5 -0,4 -3,6 6,9 1,1 8,8 10,8 -18,6 10,9 -1,5 � �

Energy 619 13 6,1 21,7 4,5 1,5 10,5 9,0 16,0 5,9 -1,3 � �Financials 825 17 -4,4 -2,3 5,1 0,7 7,5 8,5 -10,3 18,7 -1,6 � �

MSCI Europe 4.779 100 2,5 8,4 4,2 1,4 10,6 10,4 2,2 8,2 -1,3 � �

12m fwd EPSin EUR (%) (x) growth (%) Rev. Ratio*

Tot. Return P/E EPS

Sources: Datastream, Erste Group Research, *ratio of positive to negative earnings revisions; the arrows indicate the momentum of change in the past 1 and 3 months

Technical setup: the MSCI Europe is currently located near the upper barrier of the sideways trading range that started in August 2011. We envisage an upward outbreak in Q1 2012. Outlook: we expect an upward trend of the MSCI Europe index in Q1 2012. The index should increase between 3% to +10%.



Estimate Q1 2012� +3% to +10%

Earnings revision ratio S&P 500(FY1 & FY2): marginally negative


Sales revision ratio S&P 500


United States United States

2012 Page 21

The S&P 500 index closed the year 2011 unchanged, which meant it had still yielded a positive return of 2.1% for investors when taking into account dividends. It thus outperformed the S&P 500 index as well as the MSCI World index (-7.6% in USD) and many other country and regional indices. Sentiment: the ISM Manufacturing index is currently at 53.9 points after yet another slight increase recently. This indicator signals a slight expansion of the US economy, which is also setting it apart from most of the other purchase manager indices in other countries, where said indices largely suggest an economic decline. When interpreting the ISM index we regard the difference between order intake and inventories as important leading indicator of the equity market. This key figure has improved significantly in the past months, whereas the equity market has not fully retraced this development yet. We therefore see further upside potential for the S&P 500. We also consider the decline of the VIX index, which is a volatility measure, a positive signal for the equity market. Only once the high volatility of shares has somewhat subsided will investors be willing to step up their investments again. Earnings, sales, and margins: most of the US companies outside of the financial sector are in good economic shape. This is especially true for groups with international business models. We expect no negative surprises on the earnings front. Currently there is a slight overhang of negative earnings revisions. The extent does not worry us for now, not the least as this indicator has recently stabilised. The sales revisions ratio paints a similar picture. The US companies should be able to maintain their, by international standards, high ROE in 2012. Since this seems realistic from the current perspective, the index is likely to record a slight increase in the first quarter. A strong rise in the oil price constitutes the biggest risk factor for this forecast. Valuations: at a PE of 13.5x and a dividend yield of 2.1% the S&P 500 index commands a fair valuation. Equities are clearly more attractive than US Treasuries (yield: 2%). Forecast Q1 2012: for the first quarter of the year we expect the S&P 500 to produce a positive performance within a range of +3% and +10%. At the same time, the volatilities should continue to decline.



Estimate Q1 2012� -3% to +3%

Earnings revisions still negative Nikkei index and EPS revisions:

Datastream, Erste Group Research

Seasonality clearly positive in Q1 Nikkei index average performance:

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

January

February

March

April

May

June

July

August

Septem

ber

October

Novem

ber

Decem

ber

Datastream, Erste Group Research

Japan Japan

2012 Page 22

The Japanese equity market lost 2.8% in the fourth quarter. However, this loss turned into a minor gain of 1% in euro terms given that the Japanese yen continued to serve as safe-haven currency. The Nikkei index even temporarily dipped below the lows that had been seen in March in the wake of the earthquake. The combination of disappointing domestic growth, political uncertainty, a strong yen, and global economic worries had been burdening the equity market before towards the end of the year optimism picked up slightly. In the environment dominated by uncertainty and nervousness, shares from the classic defensive sectors were showing relative strength. On the other hand, companies in sectors sensitive to the economic development such as technology and industrials as well as financials underperformed the market. The earnings revisions still recorded a clearly negative overhang. This means that the analysts had been revising more EPS estimates downwards than upwards. A closer analysis reveals that the expectations in the cyclicals sectors as well as in the financial sector have somewhat improved lately. Technology companies and companies in the commodity sector have recorded an above-average number of upward revisions as well. We interpret this as first sign of a positive outlook among the primary analysts. Outlook: The Japanese equity market is currently finding a bottom. The attractive valuation continues to lend the market important support. The current PE of the Nikkei amounts to 16.8x. At a dividend yield of 1.9% Japanese shares are clearly more attractive than government bonds, which currently pay a yield of only 0.99% for 10Y. Therefore the ratio of earnings yield to bond yield also decidedly favours Japanese equities. The prices/book value ratio of the 1,700 Topix companies is currently only 0.92x. This means that on average the companies are traded substantially below their net asset value. On top of that, Japanese households and institutional investors are massively underweighted in Japanese equities, as are the international investors. The pessimism Japan is exposed to can still be seen as reliable long-term counter-indicator. On top of that, we take an optimistic view towards the Japanese equity market on account of its positive seasonality in the first quarter. Therefore we expect a slightly positive performance of the market, although we do not envisage a significant outperformance vis-à-vis other leading global indices



Estimate Q1 2012� +3% to +10%

A turning point? Situation 2009:

Source: Factset Currently:

Source: Factset

-250

-200

-150

-100

-50

0

50

100

Dec-09

Oct-09

Aug-09

Jun-0

9

Apr-09

Feb-09

Dec-08

Oct-08

Aug-08

Jun-0

8

Apr-08

Feb-08

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

Earnings revisions 2009 Earnings revisions 2010Forward P/E Earnings growth

-250

-200

-150

-100

-50

0

50

100

Dec-11

Oct-11

Aug-11

Jun-1

1

Apr-11

Feb-11

Dec-10

Oct-10

Aug-10

Jun-10

Apr-10

Feb-10

0

5

10

15

20

25

Earnings revision 2011 Earnings revision 2012Forward P/E Earnings growth

CEE CEE

2012 Page 23

Technical recession at the beginning of the year We expect the government debt crisis to come with effects on the real economy of the CEE countries as well. For 2012 we envisage a slowdown in GDP growth and cannot rule out a short technical recession. Overall, however, we should still see a growth rate of +1.7% in the region. This ensures a growth differential vis-à-vis the Eurozone, which in 2012 should only grow by 0.2%, although Hungary and Croatia might close the year 2012 amid falling GDPs. Valuations are low, but so is the growth outlook Valuations have basically remained low and attractive at a PE of 8.7x for the region, as compared to a historical average of 11.9x. However, in relation to earnings growth, the picture looks slightly less favourable. The consensus estimate for 2012 has decreased to now only +8.4% (in EUR). Given that negative sentiment and risk aversion have remained the dominant factors, the still high risk premiums of equities come as no surprise. The current spread of 600bps is significantly below its record levels, but still prohibitively high. This situation could only be mitigated by a recovery of the general sentiment with a subsequent impact on earnings estimates. Does the comparison with 2009 indicate a turning point? There is also good news. A scenario in which recessionary trends expire in the first half of the year could pick up anticipatory equity markets again. While earnings revisions are still strongly negative, the trend has been weakening. In particular, the comparison with the recovery that set in in spring 2007 gives some cause for hope. Back then it was no big one-off event either, but the improvement started gradually through the outlook. If this parallel were to hold, the result of the current ZEW survey for the CEE region should also be of significant relevance; said survey highlighted that not only were equities regarded as more attractive than in 2011, but in particular CEE equities were seen as more interesting than those based in the Eurozone. We advise a very cautious stance with regard to Hungary In a country allocation we would currently be very cautious when it comes to Hungary. The creativity of the government continues to produce high levels of uncertainty. Only an agreement with the IMF and the EU, which would surely have to come with the adjustment/dilution of the Hungarian measures, could do anything towards changing the cautious stance. We have the Czech Republic, still a relatively stable market, in the midfield, and are positively disposed towards Poland as well as Turkey. Turkey will continue to have a hard time warding off the negative sentiment and fears of a hard economic landing, but in our opinion has not seen the full appreciation of investors that it would deserve.



BRICs

Estimate Q1 2012� +3% to +10%

The Brazilian real is depreciating against the USD. USD/BRL standardised 10Y:

Sources: Datastream, Erste Group Research Improving earnings revision ratio


Earnings revisions in Russia negative

MSCI Russia & oil price


Brazil Brazil

The MSCI Brazil increased by 7.6% (in USD) last quarter and thus put an end to its earlier substantial downward trend. In the recent rebound defensive sectors were clearly outperforming the market. Utilities increased by 19%, and non-cyclical consumer goods gained 10.5%. In relative terms, commodities were weaker (+4%), as were industrials (+5.6%) and telecom shares (+4.7%). The Brazilian central bank already embarked on a cycle of interest rate reductions last summer, which has now gradually started to show positive effects. Inflation has recently fallen by a slight degree as well. The Brazilian real has stabilised and has even appreciated against the US dollar. This is a positive factor for investors, and it is also an important argument in favour of the Brazilian equity market, along with the substantially improved EPS revision ratio.

With the main index having found a bottom, we expect the upward trend, which has already started, to continue in Q1. Due to the improved environment Brazilian equities should post an increase of 3 to 10% this quarter.

Estimate Q1 2012� +3% to +10%
Russia Russia
2012 Page 24

The Russian equity market found a bottom at the end of last quarter and has embarked on a new upward trend at the beginning of 2012. In line with the rising oil price, energy shares outperformed the rest of the market at +15%. The earnings revision ratio is currently still negative for Russian equities. However, we expect this ratio to improve in the foreseeable future, not the least as the relatively high oil price will have a positive influence on the earnings development of the energy sector. Apparently the earnings forecasts of the primary analysts are too conservative. We regard this as a positive aspect. The rate of inflation has fallen drastically since summer 2011, and the rouble has stabilised as well. At a PE of 5x and a dividend yield of 2.3%, Russian shares currently command an attractive valuation. The risk of a setback seems limited. Outlook After bottoming out, the Russian main index is currently at the early stages of a medium-term upward trend. We expect this trend to strengthen in line with the rising oil price and consider a performance of +3 to +10% to be realistic this quarter. We can also see the potential of a positive surprise (i.e. an increase of more than 10%).



Estimate Q1 2012� -3% to +3%

The Indian equity market is the weakest one among the BRIC regions. The earnings development is negative. This clearly shows that the GDP growth in one of the most rapidly growing regions in the world has not been transformed into company earnings growth. As has been demonstrated, there is also no correlation between economic growth and earnings growth in the corporate sector. One major reason of the weak earnings development among Indian companies is the high dependence on imports. The current inflation rate of 9.4% and the weak rupee are burdening investor sentiment. The earnings revision ratio has also remained negative. The expected opening of the equity market should also contribute to its stabilisation. We expect a sideways movement of the MSCI India in Q1 in a range of +/-3%.

Estimate Q1 2012� +3% to +10%

Foreign investors were very cautious in 2011 Foreign equity investments in India & equity index:


Earning Revisio MSCI Hong Kong

Source: Datastream, Erste Group Research

China & Hong Kong China & Hong Kong

India India

2012 Page 25

While the earnings of the Chinese companies have been moving sideways on high levels, the equity market in Hong Kong has already stabilised. However, the Shanghai Composite index has been locked in a profound downward trend in the past months and is only now starting to bottom out at a time lag of several months. At the moment the volatilities of Chinese equities are significantly elevated. This clearly signals that no swift increase in the index is imminent. The earnings revision ratio is negative for Chinese shares as well, although it has been stabilising and even started displaying a gradual upward tendency in the past weeks. We do not expect this trend to accelerate significantly in the coming months. Overall the situation on the equity market is looking brighter than just a few months ago. We therefore expect a sideways movement of the MSCI China with an amplitude of +/-3% for the time being. The potential for positive surprises is there.



TABLES & APPENDIX Economic indicators

11 12e 13e 12e 13e 12e 13e 12e 13e 12e 13e 12e 13eEurozone 1.5 0.2 1.2 1.8 1.6 10.5 10.2 -5.4 -5.1 -2.5 -2.1 45.9 45.1Germany 2.8 0.7 1.7 2.2 1.3 6.2 6.4 4.9 4.8 -1.1 -0.8 81.9 81.0France 1.5 0.4 1.2 2.1 1.4 9.2 9.0 -2.5 -2.5 -4.6 -4.0 89.4 90.7Spain 0.7 0.3 0.9 2.9 1.5 19.7 18.5 -3.1 -2.8 -5.2 -4.4 70.2 72.8Italy 0.7 -0.4 0.5 2.6 1.6 8.5 8.6 -3.0 -2.5 -2.4 -1.1 121.4 120.1Austria 3.3 0.9 2.0 2.4 1.9 4.4 4.4 3.0 3.0 -2.9 -2.8 74.0 74.0UK 1.1 1.6 2.4 2.4 2.0 7.8 7.8 -2.3 -1.7 -7.0 -5.1 84.8 85.9Switzerland 2.1 1.4 1.8 0.9 1.0 3.4 3.1 10.9 10.7 0.6 0.5 51.2 50.0Russia 4.3 4.1 4.1 7.3 6.9 7.1 7.0 3.5 2.2 -2.1 -2.3 12.1 12.6Poland 4.2 2.6 3.4 2.7 2.8 11.9 10.7 -4.5 -4.9 -3.6 -3.0 55.5 54.4Turkey 7.5 2.5 4.5 7.0 6.0 10.0 10.0 -8.0 -6.0 -1.5 -1.3 37.5 35.0Czech Rep. 1.9 1.0 2.5 2.3 1.3 8.9 8.2 -4.0 -3.4 -4.0 -3.6 45.0 47.1Romania 2.3 1.2 2.9 4.1 3.8 7.1 7.0 -4.1 -4.3 -3.4 -2.8 34.7 34.9Hungary 1.6 -0.2 1.6 4.0 2.8 11.1 11.0 3.5 4.0 3.8 -3.1 76.1 75.0Slovakia 3.0 1.0 2.5 2.7 3.0 14.1 14.3 -1.5 -2.0 -4.8 -3.5 47.6 49.2Ukraine 4.9 1.0 5.0 9.0 7.0 7.5 7.3 -5.5 -6.0 -2.5 -2.0 36.0 33.0USA 1.6 1.8 1.8 1.7 1.6 9.0 8.6 -2.1 -1.7 -7.9 -6.2 105.0 108.9Canada 2.1 1.9 2.5 2.1 2.0 7.7 7.2 -3.8 -3.5 -3.2 -1.9 84.2 82.3Brazil 3.8 3.6 4.2 5.2 4.2 7.5 7.0 -2.5 -2.9 -2.8 -2.6 64.0 62.5Chile 6.5 4.7 4.5 3.1 3.0 7.2 7.2 -1.5 -1.7 1.6 1.4 10.6 10.6Mexico 3.8 3.6 3.7 3.1 3.0 3.9 3.5 -0.9 -0.9 -2.8 -2.4 43.6 43.5Argentina 8.0 4.6 4.2 11.8 11.0 6.9 6.7 -0.9 -1.1 -1.9 -1.5 41.5 40.4Colombia 4.9 4.5 4.5 2.9 3.1 11.0 10.5 -2.5 -2.1 -1.5 -1.2 34.7 33.7China 9.5 9.0 9.5 3.3 3.0 4.0 4.0 5.6 6.2 -0.8 -0.1 22.2 18.4Japan -0.5 2.3 2.0 -0.5 0.0 4.8 4.6 2.8 2.6 -9.1 -7.8 238.4 242.9India 7.8 7.5 8.1 8.6 7.1 na na -2.2 -1.9 -7.3 -7.2 62.0 60.9Indonesia 6.4 6.3 6.7 6.5 5.4 6.6 6.3 -0.4 -0.6 -1.3 -1.2 24.0 22.7South Korea 3.9 4.4 4.2 3.5 3.0 3.3 3.3 1.4 1.3 2.4 2.7 30.0 28.0Thailand 3.5 4.8 4.8 4.1 4.2 1.2 1.2 2.5 1.6 -2.9 -3.2 43.5 44.5Australia 1.8 3.3 3.4 3.3 3.5 4.8 4.8 -4.7 -5.4 -1.9 -0.5 23.8 23.0South Africa 3.4 3.6 4.0 5.0 5.0 23.8 23.6 -3.7 -4.8 -3.8 -3.3 37.6 38.7World 4.0 4.0 4.5

Asi

aE

urop

e

GDP (% yoy)

Eas

tern

Eur

ope

Am

eric

as

Inflation (% yoy)

Un- employ.

(%)CA Balance

(% GDP)

Fiscal Balance (% GDP)

Gross Debt

(% GDP)

Sources: IMF, EU Commission, Erste Group Research estimates



Capital Market Forecasts GDP y/y (%)

GDP y/y 2009 2010 2011f 2012fAustria -3.8 2.3 3.3 0.9Germany -4.6 3.5 2.8 0.7France -2.5 1.5 1.5 0.4Italy -5.2 1.2 0.7 -0.4Spain -3.7 -0.1 0.7 0.3Eurozone -4.1 1.7 1.5 0.2US -3.5 3.0 1.6 1.8Quelle: Bloomberg, Erste Group Research

Inflation (%) 2009 2010 2011f 2012f

Eurozone 0.3 1.6 2.7 1.8US -0.3 1.6 3.0 1.7Austria 0.5 1.9 3.3 2.4Quelle: Bloomberg, Erste Group Research

Interest Rates Interest rates current Mar 12 Jun-12 Sep-12 Dec 12

EZB MRR 1.00 0.50 0.50 0.50 0.50

3M Euribor 1.23 0.90 0.70 0.70 0.70Germany 2Y 0.16 0.30 0.35 0.40 0.45Germany 5Y 0.73 1.00 1.10 1.25 1.40Germany 10Y 1.80 2.10 2.15 2.25 2.40Swap 10Y 2.23 2.60 2.65 2.70 2.75Quelle: Bloomberg, Erste Group Research

current Mar 12 Jun-12 Sep-12 Dec 12

Fed Funds Target Rate 0.25 0.25 0.25 0.25 0.25

3M Libor 0.57 0.50 0.40 0.40 0.40Yield 2Y 0.22 0.20 0.25 0.35 0.50Yield 5Y 0.82 1.20 1.35 1.50 1.70Yield 10Y 1.90 2.10 2.20 2.40 2.50Swap 10Y 2.02 2.40 2.60 2.80 2.90Quelle: Bloomberg, Erste Group Research

current Mar 12 Jun-12 Sep-12 Dec 123M Libor CH 0.06 0.00 0.00 0.00 0.003M Libor JP 0.20 0.20 0.20 0.20 0.20Quelle: Bloomberg, Erste Group Research

FX Forecasts current Mar 12 Jun-12 Sep-12 Dec 12

EURUSD 1.28 1.27 1.25 1.25 1.25

EURJPY 98.38 99.06 97.50 97.50 100.00USDJPY 76.69 78.00 78.00 78.00 80.00EURCHF 1.21 1.20 1.20 1.20 1.20Quelle: Bloomberg, Erste Group Research



MSCI Indices - consensus estimates Market Weight DY P/CF P/B ROECap. (%) (%) (x) (x) (%)

MSCI Index (bn EUR) AC W. 1M 3M YTD FY0 FY0 FY0 FY0 FY0 FY1 FY1 FY2 abs. 1M 3MAll Country World 20,419 100 4.9 12.6 3.0 2.9 7.8 1.6 12.6 13.1 11.9 9.8 10.5 -1.3 � �

World Index 17,840 87.4 5.3 12.4 2.9 2.9 7.9 1.6 12.3 13.4 12.2 10.1 10.6 -1.3 � �

North America 10,405 51.0 6.9 15.8 3.8 2.2 8.9 2.0 14.5 15.1 13.0 16.5 10.1 -1.0 � �

Canada 928 4.5 5.3 11.0 3.5 2.8 8.2 1.8 12.5 15.7 12.7 23.1 11.1 -1.7 � �

USA 9,477 46.4 7.1 16.3 3.9 2.2 8.9 2.0 14.8 15.1 13.0 15.9 10.0 -0.9 � �

Europe 4,779 23.4 2.5 8.4 1.2 4.2 6.9 1.4 12.4 10.6 10.4 2.2 8.2 -1.3 � �

Austria 17 0.1 0.7 -5.1 -1.0 4.3 3.3 0.8 6.7 7.6 8.7 -13.6 16.7 -3.5 � �

Belgium 69 0.3 2.2 5.1 -0.3 3.2 8.8 1.3 6.8 12.8 13.7 -6.6 25.8 -3.5 � �

Denmark 78 0.4 3.6 17.1 2.2 1.5 10.0 2.0 11.1 15.6 17.9 -12.9 27.7 -0.7 � �

Finland 63 0.3 -1.0 2.5 3.4 6.4 6.1 1.4 12.3 9.3 11.7 -20.4 4.2 -0.6 � �

France 659 3.2 -1.0 2.5 -0.7 5.1 6.0 1.1 10.8 9.5 9.4 0.9 5.5 -2.0 � �

Germany 590 2.9 0.5 7.8 2.8 4.0 5.6 1.2 12.5 9.4 9.7 -2.9 8.0 -1.3 � �

Greece 6 0.0 -5.6 -20.8 -6.3 7.2 3.1 0.6 6.2 4.5 NA - - -3.0 � �

Ireland 20 0.1 8.0 18.4 -3.0 2.3 11.5 1.8 6.3 23.9 23.3 2.9 20.7 0.0 � �

Italy 162 0.8 -6.7 -1.6 -2.4 5.9 3.6 0.7 6.9 8.6 9.5 -9.8 20.8 -2.5 � �

Netherlands 180 0.9 0.6 7.3 -1.3 3.3 8.1 1.3 10.5 10.2 9.4 9.3 0.7 -0.8 � �

Norway 70 0.3 3.2 16.7 2.8 4.6 5.7 1.5 16.5 12.4 10.0 23.8 8.9 -1.4 � �

Portugal 16 0.1 -0.8 -4.5 1.4 6.8 4.7 1.3 11.1 12.0 11.5 4.9 8.6 -0.7 � �

Spain 231 1.1 -5.0 -3.9 -3.5 7.6 4.7 1.1 12.1 8.2 9.1 -8.2 3.9 -1.2 � �

Sweden 231 1.1 5.1 13.9 2.5 3.7 9.2 1.8 14.4 11.5 12.4 -7.7 9.5 -1.9 � �

Switzerland 637 3.1 5.8 7.9 1.0 3.5 13.1 2.1 13.6 12.4 13.2 -5.9 12.5 -1.0 � �

United Kingdom 1,748 8.6 5.6 13.6 2.7 3.7 7.3 1.6 14.7 11.3 10.0 13.8 6.7 -0.4 � �

Pacific 2,604 12.8 3.8 7.3 2.4 3.4 6.5 1.1 7.1 14.1 13.3 6.5 18.0 -1.7 � �

Japan 1,610 7.9 4.6 4.0 2.0 2.7 5.7 0.9 5.0 14.4 14.3 0.7 28.5 -2.0 � �

Hong Kong 210 1.0 4.6 15.2 2.5 3.1 8.8 1.2 11.2 14.4 12.0 19.7 -10.0 0.0 � �

Singapore 127 0.6 3.0 10.0 4.6 3.7 8.6 1.4 13.1 12.2 12.6 -1.0 5.9 -0.8 � �

Australia 649 3.2 1.7 13.2 3.1 5.1 9.0 1.7 13.8 11.9 11.1 7.2 9.9 -1.8 � �

Emerging Markets 2,579 12.6 2.5 13.5 3.3 3.0 6.9 1.6 14.7 11.3 10.2 7.5 9.9 -1.4 � �

EM Asia 1,519 7.4 2.6 13.1 2.9 2.8 7.1 1.6 14.3 12.0 11.1 1.3 13.0 -1.4 � �

China 456 2.2 2.6 18.2 2.5 3.2 6.8 1.6 17.1 10.5 9.4 12.7 10.6 -2.0 � �

India 163 0.8 -3.2 -1.6 5.7 1.4 9.9 2.4 16.7 14.6 13.3 2.7 16.6 -0.5 � �

Indonesia 77 0.4 7.6 17.8 3.3 2.4 11.2 3.8 25.1 17.6 14.7 20.1 15.0 -0.7 � �

Korea 382 1.9 -0.9 16.2 2.1 1.3 6.0 1.2 11.2 11.1 9.1 -7.5 11.8 -1.1 � �

Malaysia 90 0.4 7.6 17.3 2.2 2.8 11.4 2.2 12.9 17.0 16.0 31.9 12.8 -0.8 � �

Taiwan 282 1.4 8.4 8.2 3.2 4.8 7.1 1.7 12.9 12.5 15.6 -23.3 19.6 -1.9 � �

Thailand 49 0.2 2.1 16.7 1.7 3.3 7.8 2.2 19.4 13.9 11.2 31.0 11.7 -0.8 � �

EM Europe 247 1.2 -0.2 10.8 3.6 3.1 3.9 1.0 16.9 6.7 5.4 22.7 -3.7 -2.3 � �

Czech Republic 8 0.0 -1.7 -1.6 -3.6 7.6 6.7 1.8 15.4 9.2 10.9 -15.5 8.7 -3.0 � �

Hungary 7 0.0 -11.4 -8.8 -5.5 2.4 4.4 0.9 10.4 8.3 8.4 -1.1 12.4 2.9 � �

Poland 34 0.2 -4.1 -3.1 -0.4 5.4 4.1 1.2 14.9 10.4 8.1 30.8 -10.2 -3.4 � �

Russia 167 0.8 2.2 20.6 5.9 2.4 3.6 0.9 17.7 5.7 4.5 28.3 -5.4 -1.2 � �

Turkey 31 0.2 -5.1 -8.5 0.7 3.3 7.6 1.4 15.7 8.7 9.4 -8.0 13.7 -2.7 � �

EM Latin America 600 2.9 2.8 15.6 4.6 3.2 7.8 1.7 14.3 11.7 10.9 7.9 8.2 -1.3 � �

Argentina 5 0.0 10.7 11.1 13.2 8.4 3.2 1.3 24.3 6.0 6.2 76.6 9.6 -2.8 � �

Brazil 391 1.9 1.5 15.9 5.2 4.1 6.6 1.4 14.6 9.7 9.1 6.1 4.6 0.4 � �

Chile 46 0.2 9.0 16.8 4.2 2.3 11.5 2.3 13.5 16.0 16.4 -2.1 14.2 -7.1 � �

Colombia 26 0.1 13.5 13.4 6.4 2.6 12.1 1.8 10.5 21.8 17.9 21.9 17.2 0.0 � �

Mexico 120 0.6 2.3 14.9 2.7 1.1 10.7 2.7 12.3 22.6 20.0 12.9 27.9 -3.0 � �

Peru 17 0.1 5.6 13.9 2.2 3.2 9.4 3.3 29.5 14.5 11.1 30.0 9.0 -9.8 � �

MSCI AC WorldMaterials 1,653 8.1 2.2 10.0 4.5 2.6 6.8 1.6 14.9 12.8 10.1 27.8 10.2 -2.3 � �

Industrials 2,145 10.5 5.8 15.9 3.3 2.7 7.8 1.8 14.0 13.9 12.5 12.1 10.9 -1.4 � �

Consumer Discr. 2,063 10.1 5.4 12.9 3.9 2.0 7.5 1.9 12.9 15.8 14.3 10.1 20.0 -0.9 � �

Consumer Staples 2,138 10.5 5.8 12.1 1.0 2.9 11.6 3.0 18.0 17.3 16.1 7.9 9.3 -1.3 � �

Technology 2,511 12.3 4.8 11.9 4.0 1.6 9.2 2.5 17.7 14.3 13.3 2.7 10.7 -1.1 � �

Telecom 968 4.7 3.7 7.5 0.7 5.4 4.9 1.7 12.6 12.2 12.3 -0.3 7.2 -1.3 � �

Health Care 1,905 9.3 9.8 14.5 2.9 2.8 10.8 2.5 16.5 12.7 12.0 5.8 4.6 -0.1 � �

Utilities 783 3.8 4.1 6.3 0.4 4.7 6.1 1.3 6.2 14.9 16.3 -8.4 20.3 -1.8 � �

Energy 2,487 12.2 4.9 20.4 3.9 2.8 6.1 1.6 15.4 11.9 9.5 25.5 3.0 -1.2 � �

Financials 3,765 18.4 3.1 9.4 2.6 3.8 8.9 0.9 8.6 10.5 10.2 4.0 14.1 -1.5 � �

All Country World 20,419 100 4.9 12.6 3.0 2.9 7.8 1.6 12.6 13.1 11.9 9.8 10.5 -1.3 � �

Indu

stry

Gro

ups

Rev. Ratio*P/E EPS

growth (%)(x)12m fwd EPSTot. Return

in EUR (%)

Dev

elop

edM

arke

tsE

mer

ging

Mar

kets

Sources: Bloomberg, Erste Group Research, Equity indices in local currency.



Equity recommendations

International

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Equity ISIN Ctry. SectorAMAG AT00000AMAG3 AT BASIC RESOURCESAT&S AT0000969985 AT TECHNOLOGYaustriamicrosystems AT0000920863 AT TECHNOLOGYAustrian Post AT0000APOST4 AT MEDIABWT AT0000737705 AT PERSONAL & HOUSEHOLD GOODSCA IMMO AT0000641352 AT FINANCIAL SERVICESDO & CO AT0000818802 AT TRAVEL & LEISUREImmofinanz AT0000809058 AT FINANCIAL SERVICESKapsch TrafficCom AT000KAPSCH9 AT TECHNOLOGYLenzing AT0000644505 AT CHEMICALSOMV AT0000743059 AT OIL & GASPolytec AT0000A00XX9 AT AUTOMOBILES & PARTSRaiffeisen Bank InternationalAT0000606306 AT BANKSRHI AT0000676903 AT BASIC RESOURCESS Immo AT0000652250 AT FINANCIAL SERVICESSemperit AT0000785555 AT CHEMICALSVienna Insurance Group AT0000908504 AT INSURANCEvoestalpine AT0000937503 AT BASIC RESOURCESAB SA PLAB00000019 PL RETAILACE LU0299378421 PL AUTOMOBILES & PARTSAction SA PLACTIN00018 PL RETAILAgora PLAGORA00067 PL MEDIAApator PLAPATR00018 PL UTILITIESBerling PLBRLNG00015 PL CONSTRUCTION & MATERIALCiech S.A. PLCIECH00018 PL CHEMICALSColian (Jutrzenka) PLJTRZN00011 PL FOOD & BEVERAGECyfrowy Polsat PLCFRPT00013 PL MEDIAKulczyk Oil Ventures CA5012401058 PL OIL & GASNeuca PLTRFRM00018 PL HEALTH CARENG2 PLCCC0000016 PL RETAILPolimex PLMSTSD00019 PL CONSTRUCTION & MATERIALSynthos PLDWORY00019 PL CHEMICALSVistula Group PLVSTLA00011 PL RetailAkcansa TRAAKCNS91F3 TR CONSTRUCTION & MATERIALAksa Enerji Uretim AS TREAKSN00011 TR UTILITIESAlbaraka Turk TREALBK00011 TR BANKSAnadolu Cam TRAACNACM91F7 TR BASIC RESOURCESAnadolu Hayat TRAANHYT91O3 TR INSURANCEAnadolu Sigorta TRAANSGR9101 TR INSURANCEArcelik TRAARCLK91H5 TR PERSONAL & HOUSEHOLD GOODSAselsan TRAASELS91H2 TR INDUSTRIAL GOODS & SERVICESCimsa TRACIMSA91F9 TR CONSTRUCTION & MATERIALEmlak Konut REIT TREEGYO00017 TR FINANCIAL SERVICESGaranti Bank TRAGARAN91N1 TR BANKSGubre Fabrikalari TRAGUBRF91E2 TR CHEMICALSHalkbank TRETHAL00019 TR BANKSIsbank TRAISCTR91N2 TR BANKSKoc Holding TRAKCHOL91Q8 TR FINANCIAL SERVICESPark Elektrik TRAPRKTE91B5 TR BASIC RESOURCESSabanci Holding TRASAHOL91Q5 TR FINANCIAL SERVICESSinpas REIT TRESNGY00019 TR FINANCIAL SERVICESTofas TRATOASO91H3 TR AUTOMOBILES & PARTSTrakya Cam TRATRKCM91F7 TR CONSTRUCTION & MATERIALTurcas Petrol AS TRATRCAS92E6 TR OIL & GASTurk Telekomunikasyon ASTRETTLK00013 TR TELECOMMUNICATIONSTurkiye Sinai Kalkinma BankasiTRATSKBW91N0 TR BANKSYapi Kredi Bank TRAYKBNK91N6 TR BANKSInstitut IGH HRIGH0RA0006 CR CONSTRUCTION & MATERIALCME BMG200452024 CZ MEDIAAllami Nyomda HU0000093257 HU MEDIAPannErgy HU0000089867 HU CHEMICALSRichter Gedeon HU0000067624 HU HEALTH CAREAlbalact ROALBZACNOR0 RO FOOD & BEVERAGEPetrom ROSNPPACNOR9 RO OIL & GASSojaprotein AD RSSOJAE21837 SR FOOD & BEVERAGEGorenje SI0031104076 SI PERSONAL & HOUSEHOLD GOODSKrka SI0031102120 SI HEALTH CAREAstarta Holding NV NL0000686509 UR FOOD & BEVERAGE

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Contacts Group Research Research, Slovakia Head of Group Research Head: Juraj Barta, CFA (Fixed income) +421 2 4862 4166 Friedrich Mostböck, CEFA +43 (0)5 0100 - 11902 Sona Muzikarova (Fixed income) +421 2 4862 4762 Macro/Fixed Income Research Maria Valachyova (Fixed income) +421 2 4862 4185 Head: Gudrun Egger, CEFA (Euroland) +43 (0)5 0100 - 11909 Research, Ukraine Adrian Beck (AT, SW) +43 (0)5 0100 - 11957 Head: Maryan Zablotskyy (Fixed income) +38 044 593 - 9188 Mildred Hager (US, JP, Euroland) +43 (0)5 0100 - 17331 Ivan Ulitko (Equity) +38 044 593 - 0003 Alihan Karadagoglu (Corporates) +43 (0)5 0100 - 19633 Igor Zholonkivskyi (Equity) +38 044 593 - 1784 Peter Kaufmann (Corporates) +43 (0)5 0100 - 11183 Carmen Riefler-Kowarsch (Covered Bonds) +43 (0)5 0100 - 19632 Treasury - Erste Bank Vienna Elena Statelov, CIIA (Corporates) +43 (0)5 0100 - 19641 Saving Banks & Sales Retail Macro/Fixed Income Research CEE Head: Thomas Schaufler +43 (0)5 0100 - 84225 Co-Head CEE: Juraj Kotian (Macro/FI) +43 (0)5 0100 - 17357 Equity Retail Sales Birgit Niessner (Macro/FI) +43 (0)5 0100 - 18781 Head: Kurt Gerhold +43 (0)5 0100 - 84232 CEE Equity Research Fixed Income & Certificate Sales Co-Head: Günther Artner, CFA +43 (0)5 0100 - 11523 Head: Uwe Kolar +43 (0)5 0100 - 83214 Co-Head: Henning Eßkuchen +43 (0)5 0100 - 19634 Treasury Domestic Sales Günter Hohberger (Banks) +43 (0)5 0100 - 17354 Head: Markus Kaller +43 (0)5 0100 - 84239 Franz Hörl, CFA (Steel, Construction) +43 (0)5 0100 - 18506 Corporate Sales AT Daniel Lion, CIIA (IT) +43 (0)5 0100 - 17420 Head: Christian Skopek +43 (0)5 0100 - 84146 Christoph Schultes, CIIA (Insurance, Utility) +43 (0)5 0100 - 16314 Fixed Income & Credit Institutional Sales Thomas Unger; CFA (Oil&Gas) +43 (0)5 0100 - 17344 Institutional Sales International Vera Sutedja, CFA (Telecom) +43 (0)5 0100 - 11905 Head: Christoph Kampitsch +43 (0)5 0100 - 84979 Vladimira Urbankova, MBA (Pharma) +43 (0)5 0100 - 17343 Institutional Sales Austria Martina Valenta, MBA (Real Estate) +43 (0)5 0100 - 11913 Head: Thomas Almen +43 (0)50100 - 84323 Gerald Walek, CFA (Machinery) +43 (0)5 0100 - 16360 Martina Fux +43 (0)50100 - 84113 International Equities Michael Konczer +43 (0)50100 - 84121 Hans Engel (Market strategist) +43 (0)5 0100 - 19835 Marc Pichler +43 (0)50100 - 84118 Stephan Lingnau (Europe) +43 (0)5 0100 - 16574 Institutional Solutions Ronald Stöferle (Asia) +43 (0)5 0100 - 11723 Head: Zachary Carvell +43 (0)50100 - 83308 Editor Research CEE Brigitte Mayr +43 (0)50100 – 87481 Brett Aarons +420 956 711 014 Mikhail Roshal +43 (0)50100 – 87487 Research, Croatia/Serbia Institutional & High End Sales Head: Mladen Dodig (Equity) +381 11 22 09 178 Head: Patrick Lehnert +43 (0)5 0100 - 84259 Head: Alen Kovac (Fixed income) +385 62 37 1383 Antony Brown +44 20 7623 - 4159 Anto Augustinovic (Equity) +385 62 37 2833 Abdalla Bachu +44 20 7623 - 4159 Ivana Rogic (Fixed income) +385 62 37 2419 Lukash Beeharry +43 (0)50100 - 84125 Davor Spoljar, CFA (Equity) +385 62 37 2825 Ulrich Inhofner +43 (0)50100 - 84324 Research, Czech Republic Margit Hraschek +43 (0)50100 - 84117 Head: David Navratil (Fixed income) +420 224 995 439 Institutional Sales Germany Petr Bittner (Fixed income) +420 224 995 172 Head: Jürgen Niemeier +43 (0)50100 - 85503 Petr Bartek (Equity) +420 224 995 227 Marc Friebertshäuser +43 (0)50100 - 85540 Vaclav Kminek (Media) +420 224 995 289 Sven Kienzle +43 (0)50100 - 85541 Jana Krajcova (Fixed income) +420 224 995 232 Michael Schmotz +43 (0)50100 - 85542 Martin Krajhanzl (Equity) +420 224 995 434 Sabine Loris +43 (0)50100 - 85543 Martin Lobotka (Fixed income) +420 224 995 192 Carsten Demmler +43 (0)50100 - 85580 Lubos Mokras (Fixed income) +420 224 995 456 Jörg Moritzen +43 (0)50100 - 85581 Research, Hungary Rene Klasen +43 (0)50100 - 85521 Head: József Miró (Equity) +361 235-5131 Klaus Vosseler +43 (0)50100 - 85560 Bernadett Papp (Equity) +361 235-5135 Milosz Chrustek +43 (0)50100 - 85522 Gergely Gabler (Equity) +361 253-5133 Andreas Goll +43 (0)50100 - 85561 Zoltan Arokszallasi (Fixed income) +361 373-2830 Mathias Gindele +43 (0)50100 - 85562 Research, Poland Institutional Sales CEE Tomasz Kasowicz (Equity) +48 22 330 6251 Head: Jaromir Malak +43 (0)50100 - 84254 Piotr Lopaciuk (Equity) +48 22 330 6252 Sales CEE Marek Czachor (Equity) +48 22 330 6254 Pawel Kielek +48 22 538 62 23 Research, Romania Piotr Zagan +43 (0)50100 - 84256 Head: Lucian Claudiu Anghel +40 37226 1021 Ciprian Mitu +43 (0)50100 - 84253 Head Equity: Mihai Caruntu (Equity) +40 21 311 2754 Institutional Sales Slovakia Dorina Cobiscan (Fixed Income) +40 37226 1028 Head: Peter Kniz +421 2 4862-5624 Dumitru Dulgheru (Fixed income) +40 37226 1029 Sarlota Sipulova +421 2 4862-5629 Eugen Sinca (Fixed income) +40 37226 1026 Institutional Sales Czech Republic Raluca Ungureanu (Equity) +40 21311 2754 Head: Ondrej Cech +420 2 2499 - 5577 Research Turkey Pavel Zdichynec +420 2 2499 - 5590 Head: Erkin Sahinoz (Fixed Income) +90 212 371 2540 Milan Bartos +420 2 2499 - 5562 Sevda Sarp (Equity) +90 212 371 2537 Radek Chupik +420 2 2499 - 5565 Evrim Dairecioglu (Equity) +90 212 371 2535 Institutional Sales Croatia Ozlem Derici (Fixed Income) +90 212 371 2536 Head: Darko Horvatin +385 (0)6237 - 1788 Mehmet Emin Zumrut (Equity) +90 212 371 2539 Natalija Zujic +385 (0)6237 - 1638 Institutional Sales Hungary

Norbert Siklosi +36 1 235 - 5842 Institutional Sales Romania

Head: Valentin Popovici +40 21 310-4449 - 59 Ruxandra Carlan +40 21 310-4449 - 612



Notes



Disclaimer

Published by Erste Group Bank AG, Neutorgasse 17, 1010 Vienna, Austria. Phone +43 (0)5 0100 - ext.

Erste Group Homepage: www.erstegroup.com On Bloomberg please type: EBS AV and then F8 GO This research report was prepared by Erste Group Bank AG (”Erste Group”) or its affiliate named herein. The individual(s) involved in the preparation of the report were at the relevant time employed in Erste Group or any of its affiliates. The report was prepared for Erste Group clients. The information herein has been obtained from, and any opinions herein are based upon, sources believed reliable, but we do not represent that it is accurate or complete and it should not be relied upon as such. All opinions, forecasts and estimates herein reflect our judgment on the date of this report and are subject to change without notice. The report is not intended to be an offer, or the solicitation of any offer, to buy or sell the securities referred to herein. From time to time, Erste Group or its affiliates or the principals or employees of Erste Group or its affiliates may have a position in the securities referred to herein or hold options, warrants or rights with respect thereto or other securities of such issuers and may make a market or otherwise act as principal in transactions in any of these securities. Erste Group or its affiliates or the principals or employees of Erste Group or its affiliates may from time to time provide investment banking or consulting services to or serve as a director of a company being reported on herein. Further information on the securities referred to herein may be obtained from Erste Group upon request. Past performance is not necessarily indicative for future results and transactions in securities, options or futures can be considered risky. Not all transactions are suitable for every investor. Investors should consult their advisor, to make sure that the planned investment fits into their needs and preferences and that the involved risks are fully understood. This document may not be reproduced, distributed or published without the prior consent of Erste Group. Erste Group Bank AG confirms that it has approved any investment advertisements contained in this material. Erste Group Bank AG is regulated by the Financial Market Authority (FMA) Otto-Wagner-Platz 5,1090 Vienna, and for the conduct of investment business in the UK by the Financial Services Authority (FSA).

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