Erste Group Research - Global Strategy Outlook

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.
Expectations Q1 2012: Govt. bond yields Germany (10y) US (10y) EUR corporate bond yields Investment Grade High Yield Currencies USD YEN CHF Gold Equity performances Global Eurozone USA Japan CEE BRICs
Source: Erste Group Research
March 2012 2.10 2.10
March 2012 1.27 99.0 1.20 USD 1.755 March 2012 +3%/ +10% +3%/ +10% +3%/ +10% -3%/ +3% +3%/ +10% +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 dont 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.
Note: Our estimates are in absolute and not in relative terms. Bond yields and equity market returns in local currencies.
All prices are as of Jan. 13 2012
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Erste Group Research Global Strategy Q1 2012
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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 Economics Global USA Eurozone CEE BRICs Currencies US- Dollar Japanischer Yen Schweizer Franken Gold Techn. Analyse Bonds US Germany CEE EUR Corporate Bonds Equities Global Europe USA Japan CEE BRICs Friedrich Mostbck, CEFA Gudrun Egger, CEFA, Mildred Hager, Stephan Lingnau Mildred Hager Gudrun Egger, CEFA, Mildred Hager Juraj Kotjan, Birgit Niessner Hans Engel, Stephan Lingnau Mildred Hager Mildred Hager Adrian Beck Ronald Stferle, CMT Ronald Stferle, CMT Mildred Hager Gudrun Egger, CEFA, Mildred Hager Juraj Kotjan, Birgit Niessner Alihan Karadagoglu, Elena Statelov, CEFA Hans Engel, Stephan Lingnau, Ronald Stferle, CMT Stephan Lingnau Hans Engel Ronald Stferle, CMT Henning Esskuchen Hans Engel, Stephan Lingnau
Email: firstname.lastname@erstegroup.com Phone numbers: listed in the appendix.
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Investment Strategy Q1 2012

Yields
Germany Austria US CEE Czech Republic Hungary Romania 5 Y
10y. Govt. bonds
Q1 2012
current 1.9 3.2 2.0 3.6 9.9 7.3
Mar-12 2.1 3.1 2.1 4.0 9.4 7.2
Estimates Jun-12 Sep-12 2.2 3.0 2.2 3.9 8.9 7.2 2.3 2.9 2.4 3.9 8.5 7.2
Dec-12 2.4 2.8 2.5 4.0 8.2 7.2
EUR Corporate Bonds Investment Grade High Yield Source: Erste Group Research estimates
Corporates
Currencies
Global
Q1 2012
current
Mar-12 1.27 99.0 1.20 1,755 25.0 305 4.35
Estimates Jun-12 Sep-12 1.25 97.5 1.20 2,000 24.2 295 4.34 1.25 97.5 1.20 1,988 24.0 290 4.33
Dec-12 1.25 97.5 1.20 2,188 24.0 285 4.32
USD 1.28 JPY 98.40 CHF 1.21 Gold (USD) 1630.00 CZK 25.85 HUF 314.00 RON 4.36 Source: Erste Group Research estimates
CEE
Estimate Q1 2012 min max Global 3% 10% Europe 3% 10% 3% 10% USA Japan -3% 3% CEE 3% 10% BRICs 3% 10% 3% 10% Brazil 3% 10% Russia -3% 3% India -3% 3% China Source: Erste Group Research estimates
Equities
FX USD EUR USD JPY EUR lokal BRL RUB INR CNY
Sentiment Market
Fundamentals Profits Value
Technical Trend Volume
+ +
+ + + ++ + + + ++ -
+ + + + +
+ + + + + + +
Definitions Equity Markets:

Estimate (local currency) Equities Strong increase +10% Increase +3%/ +10% Unchanged -3%/ +3% Decline -10%/ -3% Strong decline -10% Source: Erste Group Research View ++ very positive + positive neutral - negative -- very negative
Emerging Mkts.
G3
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ECONOMICS
Global Economy
Falling growth forecasts PMI GDP (%) 11e 12e Nov. Dec. USA 50,6 51,6 1,6 1,8 0 Eurozone 49,0 48,5 1,5 0,2 N Japan 51,9 49,3 -0,5 2,3 0 BRICs 50,0 49,5 7,6 N 7,4 Weight. 50,2 49,9 3,8 J 3,8 J
Sources: Erste Group estimates, IMF, Consensus Economics, Markit.
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%.
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2012: forecasts of global GDP growth on sharp decline G20 GDP consensus estimates 2012e:
4,0% 3,8% 3,6% 3,4% 3,2% 3,0% 2,8% 2,6% 01.11
60 10% 55 50 45 40 35 30
10.01 10.02
Source: Consensus Economics, Erste Group Research
Global purchase manager index indicates lower industrial production Global PMI & G20 industrial production (y/y):
Source: Datastream, Bloomberg, Erste Group Research
M2 money supply growth remains below 2008 levels Industrialised and emerging countries
25% 20% 1 5% 1 0% 5% 0% 01 02 03 04 05 06 07 08 09 1 0 DM (2m avg.) EM (2m avg.)
Source: Datastream, Erste Group Research
02.11
10.03
Global PMI Global PMI @ 50 Global IP

10.04 10.05 10.06 10.07 10.08 10.09 10.10 10.11
03.11
04.11
05.11
06.11
07.11
08.11
09.11
10.11
11.11
12.11
5% 0% -5% -10% -15% -20% -25%
Eurozone Economy
Uncertainty depresses outlook 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: investments should stagnate Real investments y/y (%) vs. IFO business climate
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
Net exports should remain relatively robust
Germany: moderate contribution of exports to GDP Germany: exports y/y (%) and order intake y/y
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 0,3 0,2 0,1 0 -0,1 -0,2 -0,3 -0,4
117 112 107 102 97 92 87 82
DE Exp y/y
Order intake abroad
DE Inv y/y
IFO
Sources: Datastream, Erste Group Research
Investments stagnate, private consumption dampened
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.
Zero growth and low inflation
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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 catchup 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
4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 -0.50 -1.00 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.
Erste Group Research Global Strategy Q1 2012 Page 6
CEE Economies
Industrial production y/y
15 10 5 0 -5 -10 Slovakia Croatia Turkey Romania Hungary Ukraine Poland Serbia Czech Rep. Euro Area
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 keylending 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 keylending rates to 5.75%. The forecast puts this years 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.
Aug-2011
Sep-2011
Oct-2011
Nov.11
Sources: Bloomberg
Inflation y/y
Jul-2011 Aug-2011 Sep-2011 Oct-2011 Nov-2011
12 10 8 6 4 2 0 Austria Hungary Poland Croatia Czech Rep. Romania Slovakia Turkey Ukraine Euro Area
Source: Bloomberg
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BRIC Economies
PMIs & GDP forecasts
PMIs (Manu.) GDP (%) Oct Nov Dec 11e 12e 46.5 48.7 49.1 3.4 N 3.5 N 50.4 52.6 51.6 3.6 N 3.5 52.0 51.0 54.2 7.8 7.5 N 51.0 47.7 48.7 9.5 8.3 50.6 49.1 50.3 7.7 7.0
Brazil Russia India China BRICs
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 secondlargest 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.
Sources: Consensus Economics, Markit.
Ifo economic cycle signals downturn in the BRIC countries Ifo indices Q3 2010- Q4 2011:
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 %:
The CRB index contains all important commodity classes such as oil, natural gas, primary metals, meat, and agricultural commodities.
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BONDS
Yield estimate Q1 2012
German Bunds
2.10% (10y)
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. Taylor rule indicates low interest rates until 2014 Erste Group Research Taylor rule vs. interest rate forecast (%)
7 6 5 4 3 2 1 0 -1 -2 -3
Moderate yield increases until year-end Eurozone benchmark yield (forecast Germany 10Y) in %
2,5 2 1,5 1 0,5 0 2 3 4 5 Mar. 12 6 Jun.12 7 8 9 Dec.12 10 Current Sep.12
Jn.00
Jn.01
Jn.02
Jn.03
Jn.04
Jn.05
Jn.06
Jn.07
Jn.08
Jn.09
Jn.10
Jn.11
Jn.12
Jn.13
Jn.14
Taylor Rule
ECB mrr, Erste Group Forecast
Jn.15
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.
Erste Group Research Global Strategy Q1 2012 Page 9
US 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 topperforming 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
3 2.5 2 1.5 1 0.5 0 2y current 3y 12-Mar 5y 12-Jun 7y 12-Sep Dec 12 10y
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CEE Government Bonds Tschechische Republik Czech Republic Hungary Romania

Yield estimates Q1 2012
4.00% (10y) 9.40% (10y) 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 years 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.
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EUR Corporate Bonds Investment Grade High Yield

Investment grade bonds topping performance list in 2011 Performance table:
2008 Invest. Grade High Yield Supras & Sov s ATX Index DAX Index 3.0% -34.9% 6.6% -61.2% -40.4% 2009 11.8 % 7.4 % 20 10 4.1% 3.7% 2011 5.8 % 1.7 % 4.7 % -34.9 % -14.7 %
73.4 % 14.8% 42.5 % 16.4% 23.8 % 16.1%
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 riskweighted 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 Moodys 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.
Sources: JPMorgan Credit Index, Erste Group Research, Bloomberg
Sideways movement of the speculative default rate expected in Europe

18% 16% 14% 12% 10% 8% 6% 4% 2% 0%
Jan-01
Jan-06
Jan-11
Jan-99
Jan-00
Jan-02
Jan-03
Jan-04
Jan-05
Jan-07
Jan-08
Jan-09
Jan-10
Actual Pessimistic_Forecast
Baseline_Forecast Optimistic_Forecast
Source: Moodys
Jan-12
Page 12
CURRENCIES
Estimate Q1 2012
US Dollar
1.27
The long-lasting discussion about the dollars 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. Dollar: safe haven for Eurozone?
1.7 1.6 1.5 1.4 1.3 1.2 1.1 1 03.01.2005 03.07.2005 03.01.2006 03.07.2006 03.01.2007 03.07.2007 03.01.2008 03.07.2008 03.01.2009 03.07.2009 03.01.2010 03.07.2010 03.01.2011 03.07.2011
Page 13
-2.5 2.5 7.5 12.5 17.5
EURUSD
10Y Spread gips-DE, rhs inverted
Source: Bloomberg, Erste Group Research
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 Feds ongoing Operation Twist and possible forthcoming MBS purchases, the ECBs 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 dollars status as the worlds first reserve currency) also point to a stronger dollar, so that we expect appreciation to EURUSD 1.25 (perhaps even beyond) throughout the year.
Estimate Q1 2012
Technical 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 200day 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.
Page 14
Estimate Q1 2012
Japanese Yen
99
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
400 350 300 250 200 150 100 50 0
Jn.70 Jn.73 Jn.76 Jn.79 Jn.82 Jn.85 Jn.88 Jn.91 Jn.94 Jn.97 Jn.00 Jn.03 Jn.06 Jn.09
USDJPY
Fair value (PPI JP/PPI US indexed on 1990 USDJPY)
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.
Page 15
Estimate Q1 2012 Swiss Franc Swiss Franc
1.20
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
1,35 1,3 1,25 1,2 1,15 1,1 1,05 1
04/2011 05/2011 06/2011 07/2011 08/2011 09/2011 10/2011 11/2011 12/2011
Page 16
Estimate Q1 2012
Gold (USD)
Correction of gold and silver continues, but is coming to an end
1,755
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:
2000 1800 1600 1400 Gold in USD 1200 1000 800 600 400 200 0 400 200 800 600 Gold in USD Gold in EUR 1200 1000 Gold in EUR 1600 1400
2002
2002
2003
2004
2005
2005
2006
2007
2008
2008
2009
2010
2011
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.
2011
Page 17
EQUITIES
Estimate Q1 2012
Global Global
Performance overview:
North America Europe Japan EM Asia EM Europe EM Lat. Am. World Perf. EUR (%) 3m 2012 15.8 3.8 8.4 1.2 4.0 2.0 13.1 2.9 10.8 3.6 15.6 4.6 12.6 3.0 Valuation PE DY 15.1 2.2 10.6 4.2 14.4 2.7 12.0 2.8 6.7 3.1 11.7 3.2 13.1 2.9 S
+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 onbalance 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
20 weeks 40 weeks
ources: Datastream, Erste Group Research
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):
PVI long
120 weeks
Eurozone 47.5 USA 53.1 Japan 46.1 CEE 46.5 Brazil 44.5 Russia 44.9 India 44.4 47.1 China Sources: Erste Group Research
40.2 43.7 42.2 38.5 36.5 38.1 47.7 43.8
46.8 48.4 46.0 49.2 39.5 45.7 57.3 49.9
Volatility Equities Increase Decrease Increase Decrease Increase Decrease Increase Increase
Index Decrease Decrease Increase Decrease Increase Increase Increase Increase
Page 18
MSCI AC World index: determinants of the Q1 2012 performance

Performance determinants for the MSCI AC World Index Factor Bullish (1) Company earnings increase Earnings revisions are negative, but showing an increasing trend (2) Economic data above expectations Global 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) (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. (3) Interventionen by central banks The balance sheet total of the ECB and the Fed are increasing. ECB and Fed provide banks with unlimited liquidity. (4) Equities more attractive than government bonds At a dividend yield of 2.94% (MSCI AC World), equities are more attractive than government bonds. (5) Seasonality Risk appetite historically higher at the beginning of the year. Falling volatilities. Bearish (1) Eurozone debt crisis Refinancing needs of PIIGS countries in Q1 2012: EUR 194bn. Upward trend of government bond yields in 2011 (Ireland being the exception). Forecast Q1 2012 Improvement of earnings forecasts due to low interest rates and the end of the stock depletion cycle High 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.
Influence High
Medium 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. Medium Likelihood of QE III in the USA medium to high. Balance sheet total of the ECB continuously rising Medium Companies are holding large cash reserves. Low capex => higher probability of rising dividends. Low Cyclical sectors tend to outperform the market in the first half of the year, as historical data suggest. High 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. High 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. Medium 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. Low Governments will put equities at a disadvantage vis--vis bonds by imposing new or higher taxes. Governments have high need of refinancing and legislative power.
(2) Oil price increase Upward 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. (3) China's growth on the decline China'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. (4) Governmental repression of equities Italy: 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. Source: Erste Group Research
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.
Page 19
Estimate Q1 2012
Eurozone
Increase in money supply stabilising in the wake of ECB MSCI Europe (y/y) & Eurozone M1 (y/y):
+3% to +10%
Earnings revisions showing turnaround EPS revision ratio MSCI Europe (exclusive of Eurozone financials):
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:
Industry Group Materials Industrials Consumer Discr. Consumer Staples Technology Telecom Health Care Utilities Market Cap. (bn EUR) 468 507 388 681 139 333 587 232 619 825 4.779 Weight (%) Index 10 11 8 14 3 7 12 5 13 17 100 Tot. Return in EUR (%) 1M 3M 2,9 11,3 3,8 11,0 1,5 10,1 5,2 10,1 0,1 0,5 5,5 3,3 DY (%) FY0 2,8 3,4 3,1 3,2 3,0 7,3 3,7 6,9 4,5 5,1 4,2 P/B (x) FY0 1,4 1,9 1,7 3,1 2,1 1,5 3,1 1,1 1,5 0,7 1,4 P/E (x) FY0 FY1 10,9 12,5 12,4 15,8 13,5 9,0 11,5 8,8 10,5 7,5 10,6 8,9 12,0 10,7 15,4 12,9 9,5 11,3 10,8 9,0 8,5 10,4 EPS growth (%) FY1 FY2 23,8 4,2 15,7 2,9 4,8 -5,6 1,4 -18,6 16,0 -10,3 2,2 2,6 7,4 6,4 9,3 -4,0 3,6 1,9 10,9 5,9 18,7 8,2 12m fwd EPS Rev. Ratio* abs. 1M 3M -2,5 -1,2 -1,4 -0,2 -0,4 -1,5 -1,1 -1,5 -1,3 -1,6 -1,3
Margins falling EBITDA margin MSCI Europe (exclusive of Eurozone financials):
9,2 14,1 -0,4 -3,6 6,1 21,7 -4,4 -2,3 2,5 8,4
Energy Financials MSCI Europe
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%.
Page 20
Estimate Q1 2012
United States
Earnings revision ratio S&P 500 (FY1 & FY2): marginally negative
+3% to +10%
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.
Sales revision ratio S&P 500
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.
Page 21
Estimate Q1 2012
Japan
Earnings revisions still negative Nikkei index and EPS revisions:
-3% to +3%
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--vis other leading global indices
Datastream, Erste Group Research
Seasonality clearly positive in Q1 Nikkei index average performance:

2.0% 1.5% 1.0% 0.5% 0.0% November December May June July August September October January February March April -0.5% -1.0% -1.5% -2.0% -2.5%
Datastream, Erste Group Research
Page 22
Estimate Q1 2012
CEE
A turning point? Situation 2009:
Earnings revisions 2009 Forward P/E 20.0 15.0 10.0 Earnings revisions 2010 Earnings growth 100 50 0
+3% to +10%
8 Ap r-0 8 Ju n08 Au g08 O ct -0 8 De c08 Fe b09 Ap r-0 9 Ju n09 Au g09 O ct -0 9 D ec -0 9
Fe b0
5.0 0.0
-50 -100 -150 -200 -250
-5.0 -10.0 -15.0 -20.0
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--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.
Source: Factset
Currently:
Earnings revision 2011 Forward P/E
25
Earnings revision 2012 Earnings growth 100 50 0
20
0 Ap r-1 0 Ju n10 Au g10 O ct -1 0 D ec -1 0 Fe b11 Ap r-1 1 Ju n11 Au g11 O ct -1 1 De c11
Fe b1
15
-50 -100 -150
10
-200 -250
Source: Factset
Page 23
BRICs
Estimate Q1 2012
Brazil
The Brazilian real is depreciating against the USD. USD/BRL standardised 10Y:
+3% to +10%
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.
Improving earnings revision ratio
Estimate Q1 2012
Russia
+3% to +10%
Earnings revisions in Russia negative
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%).
MSCI Russia & oil price
Page 24
Estimate Q1 2012
India
Foreign investors were very cautious in 2011 Foreign equity investments in India & equity index:
-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
China & Hong Kong

Earning Revisio MSCI Hong Kong
+3% to +10%
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.
Page 25
TABLES & APPENDIX Economic indicators

GDP (% yoy) 11 Eurozone Germany France Europe Spain Italy Austria UK Switzerland Russia Eastern Europe Poland Turkey Czech Rep. Romania Hungary Slovakia Ukraine USA Canada Americas Brazil Chile Mexico Argentina Colombia China Japan Asia India Indonesia South Korea Thailand Australia South Africa World 1.5 2.8 1.5 0.7 0.7 3.3 1.1 2.1 4.3 4.2 7.5 1.9 2.3 1.6 3.0 4.9 1.6 2.1 3.8 6.5 3.8 8.0 4.9 9.5 -0.5 7.8 6.4 3.9 3.5 1.8 3.4 4.0 12e 0.2 0.7 0.4 0.3 -0.4 0.9 1.6 1.4 4.1 2.6 2.5 1.0 1.2 -0.2 1.0 1.0 1.8 1.9 3.6 4.7 3.6 4.6 4.5 9.0 2.3 7.5 6.3 4.4 4.8 3.3 3.6 4.0 13e 1.2 1.7 1.2 0.9 0.5 2.0 2.4 1.8 4.1 3.4 4.5 2.5 2.9 1.6 2.5 5.0 1.8 2.5 4.2 4.5 3.7 4.2 4.5 9.5 2.0 8.1 6.7 4.2 4.8 3.4 4.0 4.5 Inflation (% yoy) 12e 1.8 2.2 2.1 2.9 2.6 2.4 2.4 0.9 7.3 2.7 7.0 2.3 4.1 4.0 2.7 9.0 1.7 2.1 5.2 3.1 3.1 2.9 3.3 -0.5 8.6 6.5 3.5 4.1 3.3 5.0 13e 1.3 1.4 1.6 1.9 2.0 1.0 6.9 Unemploy. (%) 12e 13e 6.2 9.2 8.5 4.4 7.8 3.4 7.1 6.4 9.0 8.6 4.4 7.8 3.1 7.0 CA Balance (% GDP) 12e 13e -5.4 -5.1 4.9 4.8 -2.5 -2.5 -3.1 -2.8 -3.0 -2.5 3.0 3.0 -2.3 -1.7 10.9 10.7 3.5 2.2 -4.5 -4.9 -8.0 -6.0 -4.0 -3.4 -4.1 -4.3 3.5 4.0 -1.5 -2.0 -5.5 -6.0 -2.1 -1.7 -3.8 -3.5 -2.5 -2.9 -1.5 -1.7 -0.9 -0.9 -0.9 -1.1 -2.5 -2.1 5.6 2.8 6.2 2.6 Fiscal Balance (% GDP) 12e -2.5 -1.1 -4.6 -5.2 -2.4 -2.9 -7.0 0.6 -2.1 -3.6 -1.5 -4.0 -3.4 3.8 -4.8 -2.5 -7.9 -3.2 -2.8 1.6 -2.8 -1.9 -1.5 -0.8 -9.1 -7.3 -1.3 2.4 -2.9 -1.9 -3.8 13e -2.1 -0.8 -4.0 -4.4 -1.1 -2.8 -5.1 0.5 -2.3 -3.0 -1.3 -3.6 -2.8 -3.1 -3.5 -2.0 -6.2 -1.9 -2.6 1.4 -2.4 -1.5 -1.2 -0.1 -7.8 -7.2 -1.2 2.7 -3.2 -0.5 -3.3 Gross Debt (% GDP) 12e 45.9 81.9 89.4 70.2 74.0 84.8 51.2 12.1 55.5 37.5 45.0 34.7 76.1 47.6 36.0 84.2 64.0 10.6 43.6 41.5 34.7 22.2 62.0 24.0 30.0 43.5 23.8 37.6 13e 45.1 81.0 90.7 72.8 74.0 85.9 50.0 12.6 54.4 35.0 47.1 34.9 75.0 49.2 33.0 82.3 62.5 10.6 43.5 40.4 33.7 18.4 60.9 22.7 28.0 44.5 23.0 38.7
1.6 10.5 10.2
1.5 19.7 18.5
121.4 120.1
2.8 11.9 10.7 6.0 10.0 10.0 1.3 3.8 8.9 7.1 8.2 7.0
2.8 11.1 11.0 3.0 14.1 14.3 7.0 1.6 2.0 4.2 3.0 3.0 7.5 9.0 7.7 7.5 7.2 3.9 6.9 4.0 4.8 na 6.6 3.3 1.2 4.8 7.3 8.6 7.2 7.0 7.2 3.5 6.7 4.0 4.6 na 6.3 3.3 1.2 4.8
105.0 108.9
11.8 11.0 3.0 0.0 7.1 5.4 3.0 4.2 3.5
3.1 11.0 10.5
238.4 242.9
-2.2 -1.9 -0.4 -0.6 1.4 2.5 1.3 1.6
-4.7 -5.4 -3.7 -4.8
5.0 23.8 23.6
Sources: IMF, EU Commission, Erste Group Research estimates
Page 26
Capital Market Forecasts

GDP y/y (%)
GDP y/y Austria Germany France Italy Spain Eurozone 2009 -3.8 -4.6 -2.5 -5.2 -3.7 -4.1 2010 2.3 3.5 1.5 1.2 -0.1 1.7 3.0 2011f 3.3 2.8 1.5 0.7 0.7 1.5 1.6 2012f 0.9 0.7 0.4 -0.4 0.3 0.2 1.8
US -3.5 Quelle: Bloomberg, Erste Group Research
Inflation (%)
2009 Eurozone US 0.3 -0.3 2010 1.6 1.6 1.9 2011f 2.7 3.0 3.3 2012f 1.8 1.7 2.4
Austria 0.5 Quelle: Bloomberg, Erste Group Research
Interest Rates
Interest rates EZB MRR current 1.00 Mar 12 0.50 0.90 0.30 1.00 2.10 2.60 Jun-12 0.50 0.70 0.35 1.10 2.15 2.65 Sep-12 0.50 0.70 0.40 1.25 2.25 2.70 Dec 12 0.50 0.70 0.45 1.40 2.40 2.75
3M Euribor 1.23 Germany 2Y 0.16 Germany 5Y 0.73 Germany 10Y 1.80 Swap 10Y 2.23 Quelle: Bloomberg, Erste Group Research current Fed Funds Target Rate 0.25 3M Libor 0.57 Yield 2Y 0.22 Yield 5Y 0.82 Yield 10Y 1.90 Swap 10Y 2.02 Quelle: Bloomberg, Erste Group Research
current 3M Libor CH 0.06 3M Libor JP 0.20 Quelle: Bloomberg, Erste Group Research
Mar 12 0.25 0.50 0.20 1.20 2.10 2.40
Jun-12 0.25 0.40 0.25 1.35 2.20 2.60
Sep-12 0.25 0.40 0.35 1.50 2.40 2.80
Dec 12 0.25 0.40 0.50 1.70 2.50 2.90
Mar 12 0.00 0.20
Jun-12 0.00 0.20
Sep-12 0.00 0.20
Dec 12 0.00 0.20
FX Forecasts
current EURUSD 1.28 EURJPY 98.38 USDJPY 76.69 EURCHF 1.21 Quelle: Bloomberg, Erste Group Research Mar 12 1.27 99.06 78.00 1.20 Jun-12 1.25 97.50 78.00 1.20 Sep-12 1.25 97.50 78.00 1.20 Dec 12 1.25 100.00 80.00 1.20
Page 27
MSCI Indices - consensus estimates

MSCI Index All Country World World Index North America Canada USA Europe Austria Belgium Denmark Finland France Germany Greece Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Pacific Japan Hong Kong Singapore Australia Emerging Markets EM Asia China India Indonesia Korea Malaysia Taiwan Thailand EM Europe Czech Republic Hungary Poland Russia Turkey EM Latin America Argentina Brazil Chile Colombia Mexico Peru MSCI AC World Materials Industrials Consumer Discr. Consumer Staples Technology Telecom Health Care Utilities Energy Financials All Country World Market Cap. (bn EUR) 20,419 17,840 10,405 928 9,477 4,779 17 69 78 63 659 590 6 20 162 180 70 16 231 231 637 1,748 2,604 1,610 210 127 649 2,579 1,519 456 163 77 382 90 282 49 247 8 7 34 167 31 600 5 391 46 26 120 17 1,653 2,145 2,063 2,138 2,511 968 1,905 783 2,487 3,765 20,419 Weight (%) AC W. 100 87.4 51.0 4.5 46.4 23.4 0.1 0.3 0.4 0.3 3.2 2.9 0.0 0.1 0.8 0.9 0.3 0.1 1.1 1.1 3.1 8.6 12.8 7.9 1.0 0.6 3.2 12.6 7.4 2.2 0.8 0.4 1.9 0.4 1.4 0.2 1.2 0.0 0.0 0.2 0.8 0.2 2.9 0.0 1.9 0.2 0.1 0.6 0.1 8.1 10.5 10.1 10.5 12.3 4.7 9.3 3.8 12.2 18.4 100 Tot. Return in EUR (%) 1M 3M YTD 4.9 12.6 3.0 5.3 12.4 2.9 6.9 15.8 3.8 5.3 11.0 3.5 7.1 16.3 3.9 2.5 8.4 1.2 0.7 -5.1 -1.0 2.2 5.1 -0.3 3.6 17.1 2.2 -1.0 2.5 3.4 -1.0 2.5 -0.7 0.5 7.8 2.8 -5.6 -20.8 -6.3 8.0 18.4 -3.0 -6.7 -1.6 -2.4 0.6 7.3 -1.3 3.2 16.7 2.8 -0.8 -4.5 1.4 -5.0 -3.9 -3.5 5.1 13.9 2.5 5.8 7.9 1.0 5.6 13.6 2.7 3.8 7.3 2.4 4.6 4.0 2.0 4.6 15.2 2.5 3.0 10.0 4.6 1.7 13.2 3.1 2.5 13.5 3.3 2.6 13.1 2.9 2.6 18.2 2.5 -3.2 -1.6 5.7 7.6 17.8 3.3 -0.9 16.2 2.1 7.6 17.3 2.2 8.4 8.2 3.2 2.1 16.7 1.7 -0.2 10.8 3.6 -1.7 -11.4 -4.1 2.2 -5.1 2.8 10.7 1.5 9.0 13.5 2.3 5.6 2.2 5.8 5.4 5.8 4.8 3.7 9.8 4.1 4.9 3.1 4.9 -1.6 -3.6 -8.8 -5.5 -3.1 -0.4 20.6 5.9 -8.5 0.7 15.6 4.6 11.1 13.2 15.9 5.2 16.8 4.2 13.4 6.4 14.9 2.7 13.9 2.2 10.0 15.9 12.9 12.1 11.9 7.5 14.5 6.3 20.4 9.4 12.6 4.5 3.3 3.9 1.0 4.0 0.7 2.9 0.4 3.9 2.6 3.0 DY (%) FY0 2.9 2.9 2.2 2.8 2.2 4.2 4.3 3.2 1.5 6.4 5.1 4.0 7.2 2.3 5.9 3.3 4.6 6.8 7.6 3.7 3.5 3.7 3.4 2.7 3.1 3.7 5.1 3.0 2.8 3.2 1.4 2.4 1.3 2.8 4.8 3.3 3.1 7.6 2.4 5.4 2.4 3.3 3.2 8.4 4.1 2.3 2.6 1.1 3.2 2.6 2.7 2.0 2.9 1.6 5.4 2.8 4.7 2.8 3.8 2.9 P/CF (x) FY0 7.8 7.9 8.9 8.2 8.9 6.9 3.3 8.8 10.0 6.1 6.0 5.6 3.1 11.5 3.6 8.1 5.7 4.7 4.7 9.2 13.1 7.3 6.5 5.7 8.8 8.6 9.0 6.9 7.1 6.8 9.9 11.2 6.0 11.4 7.1 7.8 3.9 6.7 4.4 4.1 3.6 7.6 7.8 3.2 6.6 11.5 12.1 10.7 9.4 6.8 7.8 7.5 11.6 9.2 4.9 10.8 6.1 6.1 8.9 7.8 P/B (x) FY0 1.6 1.6 2.0 1.8 2.0 1.4 0.8 1.3 2.0 1.4 1.1 1.2 0.6 1.8 0.7 1.3 1.5 1.3 1.1 1.8 2.1 1.6 1.1 0.9 1.2 1.4 1.7 1.6 1.6 1.6 2.4 3.8 1.2 2.2 1.7 2.2 1.0 1.8 0.9 1.2 0.9 1.4 1.7 1.3 1.4 2.3 1.8 2.7 3.3 1.6 1.8 1.9 3.0 2.5 1.7 2.5 1.3 1.6 0.9 1.6 ROE (%) FY0 12.6 12.3 14.5 12.5 14.8 12.4 6.7 6.8 11.1 12.3 10.8 12.5 6.2 6.3 6.9 10.5 16.5 11.1 12.1 14.4 13.6 14.7 7.1 5.0 11.2 13.1 13.8 14.7 14.3 17.1 16.7 25.1 11.2 12.9 12.9 19.4 16.9 15.4 10.4 14.9 17.7 15.7 14.3 24.3 14.6 13.5 10.5 12.3 29.5 14.9 14.0 12.9 18.0 17.7 12.6 16.5 6.2 15.4 8.6 12.6 P/E (x) FY0 FY1 13.1 11.9 13.4 12.2 15.1 13.0 15.7 12.7 15.1 13.0 10.6 10.4 7.6 8.7 12.8 13.7 15.6 17.9 9.3 11.7 9.5 9.4 9.4 9.7 4.5 NA 23.9 23.3 8.6 9.5 10.2 9.4 12.4 10.0 12.0 11.5 8.2 9.1 11.5 12.4 12.4 13.2 11.3 10.0 14.1 13.3 14.4 14.3 14.4 12.0 12.2 12.6 11.9 11.1 11.3 10.2 12.0 11.1 10.5 9.4 14.6 13.3 17.6 14.7 11.1 9.1 17.0 16.0 12.5 15.6 13.9 11.2 6.7 5.4 9.2 8.3 10.4 5.7 8.7 11.7 6.0 9.7 16.0 21.8 22.6 14.5 12.8 13.9 15.8 17.3 14.3 12.2 12.7 14.9 11.9 10.5 13.1 10.9 8.4 8.1 4.5 9.4 10.9 6.2 9.1 16.4 17.9 20.0 11.1 10.1 12.5 14.3 16.1 13.3 12.3 12.0 16.3 9.5 10.2 11.9 EPS growth (%) FY1 FY2 9.8 10.5 10.1 10.6 16.5 10.1 23.1 11.1 15.9 10.0 2.2 8.2 -13.6 16.7 -6.6 25.8 -12.9 27.7 -20.4 4.2 0.9 5.5 -2.9 8.0 2.9 20.7 -9.8 20.8 9.3 0.7 23.8 8.9 4.9 8.6 -8.2 3.9 -7.7 9.5 -5.9 12.5 13.8 6.7 6.5 18.0 0.7 28.5 19.7 -10.0 -1.0 5.9 7.2 9.9 7.5 9.9 1.3 13.0 12.7 10.6 2.7 16.6 20.1 15.0 -7.5 11.8 31.9 12.8 -23.3 19.6 31.0 11.7 22.7 -3.7 -15.5 8.7 -1.1 12.4 30.8 -10.2 28.3 -5.4 -8.0 13.7 7.9 8.2 76.6 9.6 6.1 4.6 -2.1 14.2 21.9 17.2 12.9 27.9 30.0 9.0 27.8 12.1 10.1 7.9 2.7 -0.3 5.8 -8.4 25.5 4.0 9.8 10.2 10.9 20.0 9.3 10.7 7.2 4.6 20.3 3.0 14.1 10.5 12m fwd EPS Rev. Ratio* abs. 1M 3M -1.3 -1.3 -1.0 -1.7 -0.9 -1.3 -3.5 -3.5 -0.7 -0.6 -2.0 -1.3 -3.0 0.0 -2.5 -0.8 -1.4 -0.7 -1.2 -1.9 -1.0 -0.4 -1.7 -2.0 0.0 -0.8 -1.8 -1.4 -1.4 -2.0 -0.5 -0.7 -1.1 -0.8 -1.9 -0.8 -2.3 -3.0 2.9 -3.4 -1.2 -2.7 -1.3 -2.8 0.4 -7.1 0.0 -3.0 -9.8 -2.3 -1.4 -0.9 -1.3 -1.1 -1.3 -0.1 -1.8 -1.2 -1.5 -1.3
Sources: Bloomberg, Erste Group Research, Equity indices in local currency. Erste Group Research Global Strategy Q1 2012 Page 28
Industry Groups
Emerging Markets
Developed Markets
Equity recommendations
International
Equity
Coloplast Novartis Shire AmBev Biogen Brasil Foods Bristol- Myers Squibb Alacer Gold China Petroleum Power Assets Holdings Regis Resources Americas Europ. ISIN DK0010309657 CH0012005267 JE00B2QKY057 BRAMBVACNPR1 US09062X1037 BRBRFSACNOR8 US1101221083 AU000000AQG6 CNE1000002Q2 HK0006000050 AU000000RRL8 ISIN AT00000AMAG3 AT0000969985 AT0000920863 AT0000APOST4 Ctry. DK CH IR BR US BR US AU HK HK AU Ctry. AT AT AT AT Sector HEALTH CARE HEALTH CARE HEALTH CARE FOOD & BEVERAGE HEALTH CARE FOOD & BEVERAGE HEALTH CARE GOLD MINING OIL & GAS UTILITY GOLD MINING Sector BASIC RESOURCES TECHNOLOGY TECHNOLOGY MEDIA
CEE
Equity ISIN AMAG AT00000AMAG3 AT&S AT0000969985 austriamicrosystems AT0000920863 Austrian Post AT0000APOST4 BWT AT0000737705 CA IMMO AT0000641352 DO & CO AT0000818802 Immofinanz AT0000809058 Kapsch TrafficCom AT000KAPSCH9 Lenzing AT0000644505 OMV AT0000743059 Polytec AT0000A00XX9 Raiffeisen Bank International AT0000606306 RHI AT0000676903 S Immo AT0000652250 Semperit AT0000785555 Vienna Insurance Group AT0000908504 voestalpine AT0000937503 AB SA PLAB00000019 ACE LU0299378421 Action SA PLACTIN00018 Agora PLAGORA00067 Apator PLAPATR00018 Berling PLBRLNG00015 Ciech S.A. PLCIECH00018 Colian (Jutrzenka) PLJTRZN00011 Cyfrowy Polsat PLCFRPT00013 Kulczyk Oil Ventures CA5012401058 Neuca PLTRFRM00018 NG2 PLCCC0000016 Polimex PLMSTSD00019 Synthos PLDWORY00019 Vistula Group PLVSTLA00011 Akcansa TRAAKCNS91F3 Aksa Enerji Uretim AS TREAKSN00011 Albaraka Turk TREALBK00011 Anadolu Cam TRAACNACM91F7 Anadolu Hayat TRAANHYT91O3 Anadolu Sigorta TRAANSGR9101 Arcelik TRAARCLK91H5 Aselsan TRAASELS91H2 Cimsa TRACIMSA91F9 Emlak Konut REIT TREEGYO00017 Garanti Bank TRAGARAN91N1 Gubre Fabrikalari TRAGUBRF91E2 Halkbank TRETHAL00019 Isbank TRAISCTR91N2 Koc Holding TRAKCHOL91Q8 Park Elektrik TRAPRKTE91B5 Sabanci Holding TRASAHOL91Q5 Sinpas REIT TRESNGY00019 Tofas TRATOASO91H3 Trakya Cam TRATRKCM91F7 Turcas Petrol AS TRATRCAS92E6 Turk Telekomunikasyon AS TRETTLK00013 Turkiye Sinai Kalkinma Bankasi TRATSKBW91N0 Yapi Kredi Bank TRAYKBNK91N6 Institut IGH HRIGH0RA0006 CME BMG200452024 Allami Nyomda HU0000093257 PannErgy HU0000089867 Richter Gedeon HU0000067624 Albalact ROALBZACNOR0 Petrom ROSNPPACNOR9 Sojaprotein AD RSSOJAE21837 Gorenje SI0031104076 Krka SI0031102120 Astarta Holding NV NL0000686509
Ctry. AT AT AT AT AT AT AT AT AT AT AT AT AT AT AT AT AT AT PL PL PL PL PL PL PL PL PL PL PL PL PL PL PL TR TR TR TR TR TR TR TR TR TR TR TR TR TR TR TR TR TR TR TR TR TR TR TR CR CZ HU HU HU RO RO SR SI SI UR Sector BASIC RESOURCES TECHNOLOGY TECHNOLOGY MEDIA PERSONAL & HOUSEHOLD GOODS FINANCIAL SERVICES TRAVEL & LEISURE FINANCIAL SERVICES TECHNOLOGY CHEMICALS OIL & GAS AUTOMOBILES & PARTS BANKS BASIC RESOURCES FINANCIAL SERVICES CHEMICALS INSURANCE BASIC RESOURCES RETAIL AUTOMOBILES & PARTS RETAIL MEDIA UTILITIES CONSTRUCTION & MATERIAL CHEMICALS FOOD & BEVERAGE MEDIA OIL & GAS HEALTH CARE RETAIL CONSTRUCTION & MATERIAL CHEMICALS Retail CONSTRUCTION & MATERIAL UTILITIES BANKS BASIC RESOURCES INSURANCE INSURANCE PERSONAL & HOUSEHOLD GOODS INDUSTRIAL GOODS & SERVICES CONSTRUCTION & MATERIAL FINANCIAL SERVICES BANKS CHEMICALS BANKS BANKS FINANCIAL SERVICES BASIC RESOURCES FINANCIAL SERVICES FINANCIAL SERVICES AUTOMOBILES & PARTS CONSTRUCTION & MATERIAL OIL & GAS TELECOMMUNICATIONS BANKS BANKS CONSTRUCTION & MATERIAL MEDIA MEDIA CHEMICALS HEALTH CARE FOOD & BEVERAGE OIL & GAS FOOD & BEVERAGE PERSONAL & HOUSEHOLD GOODS HEALTH CARE FOOD & BEVERAGE
Asia
Equity
AMAG AT&S austriamicrosystems Austrian Post
Other
Turkey
Poland
Austria
Page 29
Contacts
Group Research
Head of Group Research Friedrich Mostbck, CEFA Macro/Fixed Income Research Head: Gudrun Egger, CEFA (Euroland) Adrian Beck (AT, SW) Mildred Hager (US, JP, Euroland) Alihan Karadagoglu (Corporates) Peter Kaufmann (Corporates) Carmen Riefler-Kowarsch (Covered Bonds) Elena Statelov, CIIA (Corporates) Macro/Fixed Income Research CEE Co-Head CEE: Juraj Kotian (Macro/FI) Birgit Niessner (Macro/FI) CEE Equity Research Co-Head: Gnther Artner, CFA Co-Head: Henning Ekuchen Gnter Hohberger (Banks) Franz Hrl, CFA (Steel, Construction) Daniel Lion, CIIA (IT) Christoph Schultes, CIIA (Insurance, Utility) Thomas Unger; CFA (Oil&Gas) Vera Sutedja, CFA (Telecom) Vladimira Urbankova, MBA (Pharma) Martina Valenta, MBA (Real Estate) Gerald Walek, CFA (Machinery) International Equities Hans Engel (Market strategist) Stephan Lingnau (Europe) Ronald Stferle (Asia) Editor Research CEE Brett Aarons Research, Croatia/Serbia Head: Mladen Dodig (Equity) Head: Alen Kovac (Fixed income) Anto Augustinovic (Equity) Ivana Rogic (Fixed income) Davor Spoljar, CFA (Equity) Research, Czech Republic Head: David Navratil (Fixed income) Petr Bittner (Fixed income) Petr Bartek (Equity) Vaclav Kminek (Media) Jana Krajcova (Fixed income) Martin Krajhanzl (Equity) Martin Lobotka (Fixed income) Lubos Mokras (Fixed income) Research, Hungary Head: Jzsef Mir (Equity) Bernadett Papp (Equity) Gergely Gabler (Equity) Zoltan Arokszallasi (Fixed income) Research, Poland Tomasz Kasowicz (Equity) Piotr Lopaciuk (Equity) Marek Czachor (Equity) Research, Romania Head: Lucian Claudiu Anghel Head Equity: Mihai Caruntu (Equity) Dorina Cobiscan (Fixed Income) Dumitru Dulgheru (Fixed income) Eugen Sinca (Fixed income) Raluca Ungureanu (Equity) Research Turkey Head: Erkin Sahinoz (Fixed Income) Sevda Sarp (Equity) Evrim Dairecioglu (Equity) Ozlem Derici (Fixed Income) Mehmet Emin Zumrut (Equity) +43 (0)5 0100 - 11902 +43 (0)5 0100 +43 (0)5 0100 +43 (0)5 0100 +43 (0)5 0100 +43 (0)5 0100 +43 (0)5 0100 +43 (0)5 0100 11909 11957 17331 19633 11183 19632 19641 Research, Slovakia Head: Juraj Barta, CFA (Fixed income) Sona Muzikarova (Fixed income) Maria Valachyova (Fixed income) Research, Ukraine Head: Maryan Zablotskyy (Fixed income) Ivan Ulitko (Equity) Igor Zholonkivskyi (Equity) +421 2 4862 4166 +421 2 4862 4762 +421 2 4862 4185 +38 044 593 - 9188 +38 044 593 - 0003 +38 044 593 - 1784
Treasury - Erste Bank Vienna

Saving Banks & Sales Retail Head: Thomas Schaufler Equity Retail Sales Head: Kurt Gerhold Fixed Income & Certificate Sales Head: Uwe Kolar Treasury Domestic Sales Head: Markus Kaller Corporate Sales AT Head: Christian Skopek +43 (0)5 0100 - 84225 +43 (0)5 0100 - 84232 +43 (0)5 0100 - 83214 +43 (0)5 0100 - 84239 +43 (0)5 0100 - 84146
+43 (0)5 0100 - 17357 +43 (0)5 0100 - 18781 +43 (0)5 0100 +43 (0)5 0100 +43 (0)5 0100 +43 (0)5 0100 +43 (0)5 0100 +43 (0)5 0100 +43 (0)5 0100 +43 (0)5 0100 +43 (0)5 0100 +43 (0)5 0100 +43 (0)5 0100 11523 19634 17354 18506 17420 16314 17344 11905 17343 11913 16360
Fixed Income & Credit Institutional Sales

Institutional Sales International Head: Christoph Kampitsch Institutional Sales Austria Head: Thomas Almen Martina Fux Michael Konczer Marc Pichler Institutional Solutions Head: Zachary Carvell Brigitte Mayr Mikhail Roshal Institutional & High End Sales Head: Patrick Lehnert Antony Brown Abdalla Bachu Lukash Beeharry Ulrich Inhofner Margit Hraschek Institutional Sales Germany Head: Jrgen Niemeier Marc Friebertshuser Sven Kienzle Michael Schmotz Sabine Loris Carsten Demmler Jrg Moritzen Rene Klasen Klaus Vosseler Milosz Chrustek Andreas Goll Mathias Gindele Institutional Sales CEE Head: Jaromir Malak Sales CEE Pawel Kielek Piotr Zagan Ciprian Mitu Institutional Sales Slovakia Head: Peter Kniz Sarlota Sipulova Institutional Sales Czech Republic Head: Ondrej Cech Pavel Zdichynec Milan Bartos Radek Chupik Institutional Sales Croatia Head: Darko Horvatin Natalija Zujic Institutional Sales Hungary Norbert Siklosi Institutional Sales Romania Head: Valentin Popovici Ruxandra Carlan
+43 (0)5 0100 - 84979 +43 (0)50100 +43 (0)50100 +43 (0)50100 +43 (0)50100 84323 84113 84121 84118
+43 (0)5 0100 - 19835 +43 (0)5 0100 - 16574 +43 (0)5 0100 - 11723 +420 956 711 014 +381 11 22 09 178 +385 62 37 1383 +385 62 37 2833 +385 62 37 2419 +385 62 37 2825 +420 224 995 +420 224 995 +420 224 995 +420 224 995 +420 224 995 +420 224 995 +420 224 995 +420 224 995 439 172 227 289 232 434 192 456
+43 (0)50100 - 83308 +43 (0)50100 87481 +43 (0)50100 87487 +43 (0)5 0100 - 84259 +44 20 7623 - 4159 +44 20 7623 - 4159 +43 (0)50100 - 84125 +43 (0)50100 - 84324 +43 (0)50100 - 84117 +43 (0)50100 +43 (0)50100 +43 (0)50100 +43 (0)50100 +43 (0)50100 +43 (0)50100 +43 (0)50100 +43 (0)50100 +43 (0)50100 +43 (0)50100 +43 (0)50100 +43 (0)50100 85503 85540 85541 85542 85543 85580 85581 85521 85560 85522 85561 85562
+361 235-5131 +361 235-5135 +361 253-5133 +361 373-2830 +48 22 330 6251 +48 22 330 6252 +48 22 330 6254 +40 37226 1021 +40 21 311 2754 +40 37226 1028 +40 37226 1029 +40 37226 1026 +40 21311 2754 +90 212 371 +90 212 371 +90 212 371 +90 212 371 +90 212 371 2540 2537 2535 2536 2539
+43 (0)50100 - 84254 +48 22 538 62 23 +43 (0)50100 - 84256 +43 (0)50100 - 84253 +421 2 4862-5624 +421 2 4862-5629 +420 +420 +420 +420 2 2499 2 2499 2 2499 2 2499 - 5577 - 5590 - 5562 - 5565
+385 (0)6237 - 1788 +385 (0)6237 - 1638 +36 1 235 - 5842 +40 21 310-4449 - 59 +40 21 310-4449 - 612
Page 30
Notes
Page 31
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). Please refer to www.erstegroup.com for the current list of specific disclosures and the breakdown of Erste Groups investment recommendations.
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Erste Group Research - Global Strategy Outlook

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

Global Strategy Q1 2012

March 2012 2.10 2.10

All prices are as of Jan. 13 2012

Erste Group Research Global Strategy Q1 2012

Global Strategy Team

Email: firstname.lastname@erstegroup.com Phone numbers: listed in the appendix.

Erste Group Research Global Strategy Q1 2012

Investment Strategy Q1 2012

current 1.9 3.2 2.0 3.6 9.9 7.3

Mar-12 2.1 3.1 2.1 4.0 9.4 7.2

Dec-12 2.4 2.8 2.5 4.0 8.2 7.2

Mar-12 1.27 99.0 1.20 1,755 25.0 305 4.35

Dec-12 1.25 97.5 1.20 2,188 24.0 285 4.32

Fundamentals Profits Value

Technical Trend Volume

Definitions Equity Markets:

Erste Group Research Global Strategy Q1 2012

Source: Consensus Economics, Erste Group Research

Source: Datastream, Bloomberg, Erste Group Research

Source: Datastream, Erste Group Research

Erste Group Research Global Strategy Q1 2012

Global PMI Global PMI @ 50 Global IP

Net exports should remain relatively robust

117 112 107 102 97 92 87 82

Order intake abroad

Sources: Datastream, Erste Group Research

Sources: Datastream, Erste Group Research

Investments stagnate, private consumption dampened

Zero growth and low inflation

Erste Group Research Global Strategy Q1 2012

Sources: Bloomberg, Erste Group Research

Erste Group Research Global Strategy Q1 2012

Brazil Russia India China BRICs

Sources: Consensus Economics, Markit.

Sources: Datastream, Erste Group Research

Sources: Datastream, Erste Group Research

Sources: Datastream, Erste Group Research

Erste Group Research Global Strategy Q1 2012

ECB mrr, Erste Group Forecast

Sources: Datastream, Erste Group Research

Sources: Datastream, Erste Group Research

Yield estimate Q1 2012

Sources: Bloomberg, Erste Group Research

Erste Group Research Global Strategy Q1 2012

CEE Government Bonds Tschechische Republik Czech Republic Hungary Romania

4.00% (10y) 9.40% (10y) 7.20% (5y)

Erste Group Research Global Strategy Q1 2012

EUR Corporate Bonds Investment Grade High Yield

Yield estimate Q1 2012

73.4 % 14.8% 42.5 % 16.4% 23.8 % 16.1%

Sources: JPMorgan Credit Index, Erste Group Research, Bloomberg

Sideways movement of the speculative default rate expected in Europe

Erste Group Research Global Strategy Q1 2012

-2.5 2.5 7.5 12.5 17.5

10Y Spread gips-DE, rhs inverted

Source: Bloomberg, Erste Group Research

Erste Group Research Global Strategy Q1 2012

Technical Analysis US Dollar

Erste Group Research Global Strategy Q1 2012

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

Sources: Bloomberg, Erste Group Research

Erste Group Research Global Strategy Q1 2012