Upload
others
View
0
Download
0
Embed Size (px)
Citation preview
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS.
Russia’s triumphs and traumas21 March 2016
1
Global markets have been in Risk Appetite panic this year, a rare event that normally accompanies a major
shock to the global economy…
Source: Credit Suisse
-7
-3
1
5
9
1980 1985 1990 1995 2000 2005 2010 2015
Euphoria
PanicRecession Mexico Defaults Black Monday
Recession/WarERM Crisis
Mexico Devaluation
Asian Crisis LTCM
Tech Bubble Enron/WorldCom
September 11th
Bear Stearns
Global Financial Crisis
Euro Crisis
2
Long bond yields have fallen to historically low levels
Source: Credit Suisse, Thomson Reuters DataStream; *US, Japan, UK, France, Germany, Italy, Netherlands, Spain
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
G3+ 10-year yields with kernel
3
…as Japan joins the negative rates “experiment”
Source: Credit Suisse
Negative30%
Positive70%
30% of G10 sovereign bonds trading at negative rates(includes US, Japan, euro area, Australia, New Zealand,
Switzerland, Sweden, Denmark)
Negative57%
Positive43%
…including 57% of countries with negative policy rates (includes Japan, euro area, Switzerland, Sweden,
Denmark)
4
Credit markets have seen substantial distress, with the pain in US high yield spilling over to Europe
Source: Credit Suisse
0
100
200
300
400
500
600
700
800
900
1000
2-Jan-15 2-Mar-15 2-May-15 2-Jul-15 2-Sep-15 2-Nov-15 2-Jan-16
Europe IG spread (bp)
Europe HY spread (bp)
US IG spread (bp)
US HY spread (bp)
5
Source: Credit Suisse, Thomson Reuters DataStream
Equity markets are threatening a “bear” market
80
85
90
95
100
105
110
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Major equity indices, log levels, 100 = Jan 2000
NasdaqS&P 500Euro StoxxTopix
6
So what's going on? The list of concerns that we hear from clients is long:
Weak and slowing global growth – with nominal much weaker than real
Fear that the US will tip into recession
Concerns about the capacity of central banks to continue to underpin the system
Chinese FX and equity market interventions kicked this off
The move by the BoJ to negative policy rates amplified the fears
The dramatic fall in yields has also hit sentiment regarding the health of the banking sector, particularly in Europe
Continued policy divergence
Weakness in China, and concern that policymakers are beginning to “lose control”
Geopolitical risks, including the US election, the risk of Brexit, as well as on going instability in the Middle East, Russia etc.
7
We think a key factor has been the weakness in the nominal economy….
Source: Credit Suisse, Thomson Reuters DataStream
0%
1%
2%
3%
4%
5%
6%
7%
8%
07 08 09 10 11 12 13 14 15
Nominal global GDP (y/y%)
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
07 08 09 10 11 12 13 14 15
Real global GDP (y/y%)
8
And while IP has remained positive, 18 months of sluggish growth has seen the level of activity fall well
below trend
Source: Bureau of Labor Statistics, Credit Suisse
40
45
50
55
60
98 00 02 04 06 08 10 12 14 16
Global manufacturing PMI new orders
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
80 84 88 92 96 00 04 08 12 16
Global IP deviation from 3.1% trend (pp)
Estimate
9
…with EM IP particularly weak relative to historical trends, as the “new normal” asserts itself in China
Source: Credit Suisse, Thomson Reuters DataStream
-20%
-15%
-10%
-5%
0%
5%
10%
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016
EM Industrial Production deviation from 7.7% trend (pp)
10
We think that the commodity bust is at the center of many of these issues, with EM demand much weaker
than DM – which has actually been ok…
Source: Credit Suisse, Thomson Reuters DataStream
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
DM total (goods consumption and investment)
Global
EM x-China total (goods consumption and investment)
11
We also think that production at a global level will undershoot demand in coming months, suggesting that
IP growth should rebound by-mid year
Source: Credit Suisse, Thomson Reuters DataStream, ISM
-4%
-2%
0%
2%
4%
6%
8%
10%
40
45
50
55
60
65
70
2011 2012 2013 2014 2015 2016
ISM New orders
Global IP Momentum, 3m/3m% ann., rhs
1980-2015 trend growth (3.1% p.a.)
12
While talk of a US recession has been very main steam, we note that the core of the US is still robust…
Source: Bureau of Labor Statistics, Credit Suisse
1.0
1.5
2.0
2.5
3.0
10 11 12 13 14 15 16
Average Hourly EarningsTotal Private Industries, y/y%
-800
-600
-400
-200
0
200
400
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Nonfarm Payrolls ex-Census, 3mma, thous.
13
With household demand still rock solid…
Source: Bureau of Economic Analysis, Credit Suisse
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2010 2011 2012 2013 2014 2015
Contributions to US real GDP growth, percentage points
All Other GDP
Personal Consumption and Residential Investment
14
As with the global story, weakness in the US remains very much related to commodities and the industrial
sector
Source: Bureau of Economic Analysis, Credit Suisse
-60 -45 -30 -15 0 15 30 45
Petroleum (14)
Mining (1)
Other (1)
Food and Beverage (1)
Farm (2)
Multimerchandise Shopping (4)
Warehouses (3)
Other Commercial (2)
Religious (1)
Transportation (3)
Educational (3)
Health Care (8)
Power (15)
Office (12)
Communication (4)
Lodging (5)
Amusement (3)
Manufacturing (18)
Q4’15/Q4’14 % change in nonresidential structure investment, (% of total in parentheses)
15
And rather than deflation, it is now clear that US inflation has troughed… THE FED IS STILL IN PLAY…
Source: BEA, BLS, Federal Reserve Bank of Dallas, Federal Reserve Bank of Cleveland, Credit Suisse
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Core Inflation Measures
Core CPI
Cleveland Fed Median
Cleveland Fed Trimmed Mean
Core PCE
Dallas Fed Trimmed Mean
16
Importantly we see fiscal policy turning supportive for the first time since the crisis
Source: Congressional Budget Office, Credit Suisse
-0.5-0.8
1.6
4.7
-1.2
0.0
-1.0
-2.5
-1.0
0.0
0.50.3
0.1
0.7
0.1
-4.0
-2.0
0.0
2.0
4.0
6.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
FY 2016 to 2020projections
Fiscal Easing
Fiscal Tightening
17
Source: Thomson Reuters DataStream, ECB, Credit Suisse
Notably consumer spending in Europe has also been recovering steadily
113
115
117
119
121
123
125
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Euro area retail & auto sales
18
Source: Thomson Reuters DataStream, Credit Suisse
However, the higher frequency data suggest that near term growth has peaked…
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
1999 2001 2003 2005 2007 2009 2011 2013 2015
PCA of four euro area cyclical indicators
First principal component
Filter
19
Source: Thomson Reuters DataStream, Credit Suisse
…making the case for more action from the ECB
11
13
15
17
19
21
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Euro area: bond market finance % non-financial corporations liabilities
20
Source: Yougov, Survation, ICM, Ipsos, Credit Suisse
UK: Brexit – likely to be close run
26%
31%
36%
41%
46%
51%
56%
2012 2013 2014 2015 2016
Monthly average of opinion polls on UK membership of EU
Remain
Leave
21
The key question in China is whether the slowdown has further to run? We think it has only just begun…
Source: CEIC, Credit Suisse
7
8
9
10
11
12
13
00 02 04 06 08 10 12 14
Real GDP growth (y/y%, 3 year ma)
0
5
10
15
20
00 02 04 06 08 10 12 14
IP (y/y%)
22
In the near term, IP growth is trying to stabilize, but the respite will be temporary, with a substantial
further slowing likely…
Source: Credit Suisse; CEIC; NBS; Thomson Reuters DataStream; Markit Economics
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
2008 2009 2010 2011 2012 2013 2014 2015 2016
Standardized China IP Indicators
Markit China Manuf. PMI New Orders
Common trend of 12 individual Chinese industrial products
CS Basic Material Index, 2m lead, common trend of global commodities markets
China industrial production (IP) growth momentum (3m/3m ann.%), estimated from official headline IP statistics
23
But beyond the near term the issues are mainly structural. Much of the “hockey stick” in the 2000s was
driven by a one-off boost from joining the WTO
11.5%
25.4%
9.4%
3.5%
0%
5%
10%
15%
20%
25%
30%
1995-2001 2002-2007 2010-2013 2014-2015
Annual growth rate of China real exports
Source: CEIC, Credit Suisse
24
A structural shift post Lehman in the relationship between growth and trade is not helping
Source: CEIC, Credit Suisse
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
91 93 95 97 99 01 03 05 07 09 11 13 15
Global trade volume/Global IP
25
Weak exports also reflect the fact that China is now so big, making further market share gains harder
Source: CEIC, Credit Suisse
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
80 85 90 95 00 05 10 15
Share of global industrial production
US
China
26
Investment growth has slowed noticeably
Source: CEIC, Credit Suisse
13
14
14
15
15
16
05 06 07 08 09 10 11 12 13 14 15
Nominal fixed asset investment(log level, seasonally adjusted)
Pre-crisis trend:26% p.a.
Recent trend: 11% p.a.
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
05 06 07 08 09 10 11 12 13 14 15
Fixed Asset Investment Growth(Nominal, % yoy, 3mma)
GFCF (from annual GDP data)Manufacturing (32%)Infrastructure (13%)Real estate (20%)
27
However the investment share of output has yet to fall meaningfully
Source: NBS, Credit Suisse
30%
32%
34%
36%
38%
40%
42%
44%
46%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Investment share of China GDP
28
Housing investment has probably peaked in level terms, although prices have recovered in recent months
as the stimulus hits
Source: CEIC, Credit Suisse
9.7
10.2
10.7
11.2
11.7
12.2
04 05 06 07 08 09 10 11 12 13 14 15
Residential Building Sales and Construction(floor space, log, SA, 3mma)
SoldStartsCompleted
0
10
20
30
40
50
60
70
80
11 12 13 14 15
Number of Cities Experiencing Price Increase/Decrease
IncreaseUnchangedDecrease
29
The fall in FX reserves has many nervous
Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service, CEIC
-150
-100
-50
0
50
100
150
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
China FX Reserve Monthly Change, bn USD, 3mma
China monthly change in FX reserves,bn USD
3mma
30
Moving Back To Markets, QE had the desired impact on wealth; but with the Fed in play, risks are building
3
3.2
3.4
3.6
3.8
4
4.2
4.4
4.6
4.8
5
1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012
US Private Net Worth to GDP Ratio
Source: Credit Suisse, Federal Reserve, BEA
31
Oil looks to be approaching a bottom, but don’t expect a big bounce
Source: IMF, Credit Suisse, the BLOOMBERG PROFESSIONAL™ service
0
10
20
30
40
50
60
70
80
90
100
110
120
130
140
150
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Oil, US$/barrel, 2010 Real Prices
1990-2000 decade average ($28.50)
Long term average (since 1900)
32
While the dollar may pause in the near term, the bull market has further to run
Source: Credit Suisse, Thomson Reuters DataStream
90
95
100
105
110
115
120
125
130
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Real Effective Exchange Rate (2010=100)
33
We expect US yields to move a little higher, but China and Europe will keep the long end contained
Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service
0
1
2
3
4
5
6
7
8
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US 10y yield and forecasts
10y Treasury Yield
CS Forecast
34
Our Equity Strategist does not expect the US stock market to continue to fall, with the S&P likely to finish
the year a little higher
0
500
1000
1500
2000
2500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
S&P 500
YE 2016 forecast: 2050
Source: Credit Suisse, Thomson Reuters DataStream
35
The rouble/US$ exchange rate: still tracking oil prices
Source: The BLOOMBERG PROFESSIONAL™ service, Credit Suisse
36
Most oil-exporting nations have seen a large current account deterioration since 2013 -- Russia stands out
among them with its current account improvementTerms-of-trade effect: Real-income-consequence (in % of 2013 GDP) of the fall in global oil prices that took place between 2013 and 2015
Actual change in the current account of the balance of payments between 2013 and 2015(in % of 2013 GDP)
Sources: The BLOOMBERG PROFESIONAL™ service, the UN’s commodity trade database, the IMF’s country reports, and Credit Suisse; the 2015 estimates reflect the outcome for the first three quarters of that year, rather than the full year.
The two charts above compared to each other
37
Russia’s real GDP per capita is now same as in 2008; by comparison it doubled between 1998 and 2008
Source: IMF’s WEO database from October 2015, and Credit Suisse’s EM Economics Quarterly from 10 March 2016
Comment: The growth differentials between the BRIC countries are to a large extent a function of their ratios of fixed investment to GDP, which in 2014amounted to 48% in China, 35% in India, 19% in Russia and 17% in Brazil. Other factors that impede growth in Russia and Brazil include curbs on domesticcompetition, direct government involvement in many production sectors, poor legal title protection, bureaucratic hurdles preventing start-ups, shrinking slack inthe labour market, and declining scope (on account of balance of payments constraints and high inflation) for propping up growth through rapid credit expansionthrough the banking system.
38
Russia’s dollar-GDP grew faster than China’s between 2000 and 2013…but since then falling export prices and sharp rouble depreciation have killed Russia’s $-GDP
Source: IMF’s WEO database from October 2015, updated with data from Credit Suisse’s EM Economics Quarterly , 10 March 2016
39
As recently as in 2014, Russia’s per capita income was high by BRIC standards (and by Turkey’s), but it now
similar to China’s, Brazil’s and Turkey’s
Sources: IMF’s WEO database from October 2015, Credit Suisse’s EM Economics Quarterly from 10 March 2016 and The BLOOMBERG PROFESIONAL™ service. Quoted forecasts are from Credit Suisse’s Research Team. Quoted ratings and spreads are up-to-date as of 14 March 2016.
Income, population, ratings for the BRIC countries and TurkeyChina India Brazil Russia Turkey
Annual compound growth in real GDP per capita 2000‐2015 (in %) 9.0 5.9 1.6 3.7 2.8Annual GDP per capita at current prices 2014 (in US dollars) 7,547 1,623 11,915 12,948 10,876Annual GDP per capita at current prices, forecast, 2016 (in US dollars) 7,906 1,701 7,143 8,118 8,640Annual GDP per capita at purchasing power parity exchange rates 2014 (in US dollars) 12,880 5,855 16,096 24,805 20,188Population end‐2016 (in millions, forecast) 1,383 1,297 206 144 74Cumulative population growth 2010‐2015 (in %) 2.6 6.3 4.6 0.6 2.8Sovereign credit rating (S&P/Moody's) AA‐/Aa3 BBB‐/Baa3 BB/Ba2 BB+/Ba1 BB+/Baa35‐year sovereign CDS spread, bps, 14 March 2016 114 142 390 286 255
40
Miserable 2015 growth and inflation stats for Russia and Brazil; less miserable data for Turkey
Sources: IMF’s WEO database from October 2015, Credit Suisse’s EM Economics Quarterly from 10 March 2016. Quoted forecasts are from Credit Suisse’s Research Team.
41
Collapsing domestic demand has led to current account improvement (but fiscal balance deterioration) in Russia
and Brazil – Russia can afford this better than Brazil
Sources: IMF’s WEO database from October 2015, Credit Suisse’s EM Economics Quarterly from 10 March 2016. Quoted forecasts are from Credit Suisse’s Research Team.
42
The Russian government’s low level of indebtedness is a stand-out credit-positive factor, one that mitigates
harm done by the widening fiscal deficit
Sources: Gross debt numbers are from Credit Suisse’s EM Economics Quarterly from 10 March 2016, with an added line for the numbers for Turkey from IMF’s WEO database from October 2015. Quoted forecasts are from Credit Suisse’s Research Team, except in the case of Turkey (the figure for Turkey is an IMF forecast).
43
Putin’s largely immune to worsening economic situation, but the government is not
Consumer Confidence vs Support of Government, Putin
Source: Levada
30
40
50
60
70
80
90
100
Jan
Feb
Mar
chAp
rilM
ayJu
neJu
lyA
ugS
ep Oct
Nov
Dec Ja
nFe
bM
arch
April
May
June
July
Aug
Sep Oct
Nov
Dec Ja
nFe
b
Putin Support
Government Support
Consumer Expectations
44
Appetite for Protest's Low, but Rising
Do you expect protests in your region?
0
5
10
15
20
25
30
Feb 2014. Feb 2015. Apr 2015. June 2015. Aug 2015. Oct 2015. Dec 2015. Feb 2015.
Economic Protests
Political Protests
45
Disclosure AppendixAnalyst CertificationThe analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
Important DisclosuresCredit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail, please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research:.http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html..Credit Suisse's policy is to publish research reports as it deems appropriate, based on developments with the subject issuer, the sector or the market that may have a material impact on the research views or opinions stated herein..The analyst(s) involved in the preparation of this research report received compensation that is based upon various factors, including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's Investment Banking and Fixed Income Divisions..Credit Suisse may trade as principal in the securities or derivatives of the issuers that are the subject of this report..At any point in time, Credit Suisse is likely to have significant holdings in the securities mentioned in this report..As at the date of this report, Credit Suisse acts as a market maker or liquidity provider in the debt securities of the subject issuer(s) mentioned in this report..For important disclosure information on securities recommended in this report, please visit the website at.https://rave.credit-suisse.com/disclosures/view/fixedincome.or call +1-212-538-7625..For the history of trade ideas suggested by the Fixed Income Research department over the previous 12 months, please view the document at.https://plus.credit-suisse.com/r/aaCzfz. Credit Suisse clients with access to the Locus website may refer to.http://www.credit-suisse.com/locus. For the history of trade ideas suggested by Emerging Markets Strategy Research, please see the latest.Emerging Markets Fixed Income Views.report on.Credit Suisse PLUS..Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.
46
Disclosure Appendix cont'dReferences in this report to Credit Suisse include all of the subsidiaries and affiliates of Credit Suisse operating under its investment banking division. For more information on our structure, please use the following link:.https://www.credit-suisse.com/who-we-are.This report may contain material that is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution,publication, availability or use would be contrary to law or regulation or which would subject Credit Suisse AG or its affiliates ("CS") to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specificallyindicated otherwise, is under copyright to CS. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of CS. All trademarks,service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of CS or its affiliates. The information, tools and material presented in this report are provided to you for information purposes onlyand are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. CS may not have taken any steps to ensure that the securities referred to in this report are suitable forany particular investor. CS will not treat recipients of this report as its customers by virtue of their receiving this report. The investments and services contained or referred to in this report may not be suitable for you and it is recommended that you consultan independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable orappropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. CS does not advise on the tax consequences of investments and you are advised to contact an independent tax adviser. Please note in particularthat the bases and levels of taxation may change.Information and opinions presented in this report have been obtained or derived from sources believed by CS to be reliable, but CS makes no representation as to their accuracy or completeness. CSaccepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to CS. This report is not to berelied upon in substitution for the exercise of independent judgment. CS may have issued, and may in the future issue, other communications that are inconsistent with, and reach different conclusions from, the information presented in this report. Thosecommunications reflect the different assumptions, views and analytical methods of the analysts who prepared them and CS is under no obligation to ensure that such other communications are brought to the attention of any recipient of this report. Someinvestments referred to in this report will be offered solely by a single entity and in the case of some investments solely by CS, or an associate of CS or CS may be the only market maker in such investments. Past performance should not be taken as anindication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publicationby CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchangerate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Investors in securities such as ADR's, the values of which are influenced by currency volatility, effectively assume this risk.Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured securitymay be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer.Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase. Some investmentsdiscussed in this report may have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in thecase of some investments the potential losses may exceed the amount of initial investment and, in such circumstances, you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence,initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliableinformation about the value, or risks, to which such an investment is exposed. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed anysuch site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS's own website material) is provided solely for your convenience and information and the content of any suchwebsite does not in any way form part of this document. Accessing such website or following such link through this report or CS's website shall be at your own risk. This report is issued and distributed in Europe (except Switzerland) by Credit SuisseSecurities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. This report is issued anddistributed in Europe (except Switzerland) by Credit Suisse International, One Cabot Square, London E14 4QJ, England, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the PrudentialRegulation Authority. This report is being distributed in Germany by Credit Suisse Securities (Europe) Limited Niederlassung Frankfurt am Main regulated by the Bundesanstalt fuer Finanzdienstleistungsaufsicht ("BaFin"). This report is being distributedin the United States and Canada by Credit Suisse Securities (USA) LLC; in Switzerland by Credit Suisse AG; in Brazil by Banco de Investimentos Credit Suisse (Brasil) S.A or its affiliates; in Mexico by Banco Credit Suisse (México), S.A. (transactionsrelated to the securities mentioned in this report will only be effected in compliance with applicable regulation); in Japan by Credit Suisse Securities (Japan) Limited, Financial Instruments Firm, Director-General of Kanto Local Finance Bureau (Kinsho)No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Investment Advisers Association, Type II Financial Instruments Firms Association; elsewhere in Asia/ Pacific by whichever of the following is theappropriately authorised entity in the relevant jurisdiction:Credit Suisse (Hong Kong) Limited, Credit Suisse Equities (Australia) Limited, Credit Suisse Securities (Thailand) Limited, regulated by the Office of the Securities and Exchange Commission, Thailand,having registered address at 990 Abdulrahim Place, 27th Floor, Unit 2701, Rama IV Road, Silom, Bangrak, Bangkok 10500, Thailand, Tel. +66 2614 6000, Credit Suisse Securities (Malaysia) Sdn Bhd, Credit Suisse AG, Singapore Branch, Credit Suisse Securities(India) Private Limited (CIN no. U67120MH1996PTC104392) regulated by the Securities and Exchange Board of India as Research Analyst (registration no. INH 000001030) and as Stock Broker (registration no. INB230970637; INF230970637; INB010970631;INF010970631), having registered address at 9th Floor, Ceejay House, Dr.A.B. Road, Worli, Mumbai - 18, India, T- +91-22 6777 3777, Credit Suisse Securities (Europe) Limited, Seoul Branch, Credit Suisse AG, Taipei Securities Branch, PT Credit SuisseSecurities Indonesia, Credit Suisse Securities (Philippines ) Inc., and elsewhere in the world by the relevant authorised affiliate of the above. Credit Suisse (Hong Kong) Limited ("CSHK") is licensed and regulated by the Securities and Futures Commission of HongKong under the laws of Hong Kong, which differ from Australian laws. CSHKL does not hold an Australian financial services licence (AFSL) and is exempt from the requirement to hold an AFSL under the Corporations Act 2001 (the Act) under Class Order 03/1103published by the ASIC in respect of financial services provided to Australian wholesale clients (within the meaning of section 761G of the Act). Research on Taiwanese securities produced by Credit Suisse AG, Taipei Securities Branch has been prepared by aregistered Senior Business Person. Research provided to residents of Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn Bhd, to whom they should direct any queries on +603 2723 2020. This report has been preparedand issued for distribution in Singapore to institutional investors, accredited investors and expert investors (each as defined under the Financial Advisers Regulations) only, and is also distributed by Credit Suisse AG, Singapore branch to overseas investors (asdefined under the Financial Advisers Regulations). By virtue of your status as an institutional investor, accredited investor, expert investor or overseas investor, Credit Suisse AG, Singapore branch is exempted from complying with certain compliance requirementsunder the Financial Advisers Act, Chapter 110 of Singapore (the "FAA"), the Financial Advisers Regulations and the relevant Notices and Guidelines issued thereunder, in respect of any financial advisory service which Credit Suisse AG, Singapore branch mayprovide to you. This information is being distributed by Credit Suisse AG (DIFC Branch), duly licensed and regulated by the Dubai Financial Services Authority (“DFSA”). Related financial services or products are only made available to Professional Clients orMarket Counterparties, as defined by the DFSA, and are not intended for any other persons. Credit Suisse AG (DIFC Branch) is located on Level 9 East, The Gate Building, DIFC, Dubai, United Arab Emirates. This research may not conform to Canadiandisclosure requirements. In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that thetrade be made in accordance with applicable exemptions from registration or licensing requirements. Non-U.S. customers wishing to effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. U.S. customerswishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the U.S. Please note that this research was originally prepared and issued by CS for distribution to their market professional and institutionalinvestor customers. Recipients who are not market professional or institutional investor customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation ofits contents. This research may relate to investments or services of a person outside of the UK or to other matters which are not authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential RegulationAuthority or in respect of which the protections of the Prudential Regulation Authority and Financial Conduct Authority for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case areavailable upon request in respect of this report. CS may provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions or trades and entering into such transactions. Any services CS provides tomunicipalities are not viewed as "advice" within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. CS is providing any such services and related information solely on an arm's length basis and not as an advisor orfiduciary to the municipality. In connection with the provision of the any such services, there is no agreement, direct or indirect, between any municipality (including the officials, management, employees or agents thereof) and CS for CS to provide advice to themunicipality. Municipalities should consult with their financial, accounting and legal advisors regarding any such services provided by CS. In addition, CS is not acting for direct or indirect compensation to solicit the municipality on behalf of an unaffiliated broker,dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an investmentadviser to provide investment advisory services to or on behalf of the municipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of thatinstitution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute investment advice by Credit Suisse to the clients of the distributing financial institution, and neitherCredit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its content. Principal is not guaranteed. Commission is the commissionrate or the amount agreed with a customer when setting up an account or at any time after that.Copyright © 2016 CREDIT SUISSE AG and/or its affiliates. All rights reserved.Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes inredemption amounts. Care is required when investing in such instruments.When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchaseprice only.