24 April 2013 Asia Pacific/ Equity Research Investment Strategy

Japan Equity Strategy Research Analysts STRATEGY Tomohiro Okawa 81 3 4550 9695 [email protected] Still early in "new dimension" foreign buying Koshiro Tsukiyama 81 3 4550 9892 [email protected] Figure 1: Foreign Investors net volume (TSE, OSE, NSE) bln yen 2,000 The second week of 2013 Foreign investors' net volume (TSE,OSE,NSE) 1,500 1.58 trillion yen 1,000

500

0

-500

-1,000

-1,500

Jan-1986 Jan-1994 Jan-1982 Jan-1984 Jan-1988 Jan-1990 Jan-1992 Jan-1996 Jan-1998 Jan-2000 Jan-2002 Jan-2004 Jan-2006 Jan-2008 Jan-2010 Jan-2012

Source: , Credit Suisse

■ Net Japanese equities purchases by foreign investors sets new record: TSE figures for the second trading week of April 2013 show that net buying by foreign investors in the Tokyo, Osaka and Nagoya markets posted a new record of ¥1,586.5bn, the highest figure since the series began in July 1982. ■ Higher overseas investor weightings will support this trend: Japanese shares have underperformed other developed country stock markets since 2007, with many foreign investors selling out of Japan. We expect that such investors remain quite cautious about Japan. On 16 April, our global equity strategy team raised its target weighting for Japanese equities substantially. Information of this sort potentially raises interest in Japanese equities among a broad range of overseas investors while helping to mitigate related concerns. ■ Stock list: From the standpoint of assuming that foreign investors are likely to remain net purchasers of Japanese equities, we have used correlations with foreign investor buying activity to identify stocks preferred by such investors. The list includes (8604), SMFG (8316) and other financial stocks, as well as prominent global manufacturers such as (6503) and (6501). We also compiled a list of stocks preferred by domestic retail investors, with some interesting results.

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24 April 2013

BoJ QE creates “new dimension” in foreign buying According to TSE figures, net purchases of Japanese shares by foreign investors across the three exchanges of Tokyo, Osaka and Nagoya in the second trading week of April (the five days of 8–12 April) were ¥1,586.5bn. This is the highest recorded value for this figure since the start-date for the statistic in July 1982. Corresponding statistics for the TSE First and Second Section go back to 1975. The equivalent figure for net foreign purchases on the TSE is the highest recorded in 38 years. The previous peak was about ¥1tn, which has been exceeded by over ¥500bn. These facts put the numbers’ size into context (Figures 2–3).

Figure 2: Foreign investors net volume (TSE, OSE, NSE) Figure 3: Foreign investors net volume (TSE 1st and 2nd) bln yen bln yen 2,000 The second week of 2013 2,000 The second week of 2013 Foreign investors' net volume (TSE,OSE,NSE) Foreign investors' net volume (TSE 1st and 2nd) 1,500 1,500 1.58 trillion yen 1.54 trillion yen 1,000 1,000

500 500

0 0

-500 -500

-1,000 -1,000

-1,500 -1,500

Jan-1981 Jan-1999 Jan-1975 Jan-1977 Jan-1979 Jan-1983 Jan-1985 Jan-1987 Jan-1989 Jan-1991 Jan-1993 Jan-1995 Jan-1997 Jan-2001 Jan-2003 Jan-2005 Jan-2007 Jan-2009 Jan-2011 Jan-2013

Jan-1986 Jan-1994 Jan-1982 Jan-1984 Jan-1988 Jan-1990 Jan-1992 Jan-1996 Jan-1998 Jan-2000 Jan-2002 Jan-2004 Jan-2006 Jan-2008 Jan-2010 Jan-2012

Source: Tokyo Stock Exchange, Credit Suisse Source: Tokyo Stock Exchange, Credit Suisse

The week in which these new records were set was the one following the BoJ Monetary Policy Board meeting on 4 April, when BoJ governor Haruhiko Kuroda announced a “new dimension” in monetary easing. We interpret the size of net foreign purchases as a sign the policy announcement shocked the markets by virtue of its scale. Aggregate weekly net foreign purchases for the three main Japanese stock markets have now exceeded ¥1tn on two occasions, the first one being the second trading week of March 2013 (4–8 March). This suggests that, since the change of government in late 2012, foreign investors have harbored high expectations of what Abenomics will do for Japan (Figure 4).

Figure 4: Foreign investors net volume (TSE, OSE, NSE) since November 2012 1,800 bln yen bln yen 9,000 1,600 weekly(LHS) 8,000 1,400 cumulative(RHS) 7,000 1,200 6,000 1,000 5,000 800 4,000 600 400 3,000 200 2,000 0 1,000

-200 0

09-Nov-2012 16-Nov-2012 23-Nov-2012 30-Nov-2012 07-Dec-2012 14-Dec-2012 21-Dec-2012 28-Dec-2012 04-Jan-2013 11-Jan-2013 18-Jan-2013 25-Jan-2013 01-Feb-2013 08-Feb-2013 15-Feb-2013 22-Feb-2013 01-Mar-2013 08-Mar-2013 15-Mar-2013 22-Mar-2013 29-Mar-2013 05-Apr-2013 12-Apr-2013

Source: Tokyo Stock Exchange, Credit Suisse

Japan Equity Strategy 2 24 April 2013

Foreign investors expected to continue buying Our global equity strategist Andrew Garthwaite recommended investors to increase target weightings significantly for Japanese equities, from 6% to 16%, in a strategy report dated 16 April, Japan: Add to Overweight and Implications. In our opinion, this view extends beyond the relative attractiveness of Japanese equities within global equity markets being higher at the moment. While Japan-based investors have differing opinions about whether the new Abe government’s policies will work, their overall stance on Japanese shares has turned decidedly bullish since the DPJ called the general election late last year. This shift in sentiment is, we believe, behind market rally of recent months. In contrast, after a rally in 2005, Japanese equities had underperformed the stock markets of other developed economies for a number of years due to factors such as domestic political turmoil and the lack of growth prospects (Figure 5). In other words, we believe that, during this lengthy period, Japanese equities were effectively abandoned for other liquid destinations.

Figure 5: Ratio of TOPIX/SP500 and TOPIX/FTSE100 Figure 6: Foreign investors net volume (TSE, OSE, NSE) since 2003 1.3 x bln yen 60,000 1.2

1.1 50,000

1.0 40,000 0.9 30,000 0.8

0.7 20,000

0.6 TOPIX/SP500 ratio 10,000 0.5 TOPIX/FTSE100 ratio

0

Jan-13 Jun-03 Nov-03 Apr-04 Sep-04 Feb-05 Jul-05 Dec-05 May-06 Oct-06 Mar-07 Aug-07 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10 May-11 Oct-11 Mar-12 Aug-12

0.4 Jan-03

Jul-03 Jul-09 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13

Source: Bloomberg, Credit Suisse Source: Tokyo Stock Exchange, Credit Suisse

Naturally, the relative unattractiveness of Japan was not the only factor, since this period included the global financial crisis as well. The fact remains, however, that many overseas funds (particularly buyout funds) repatriated capital from Japan during this period. This is clearly evidenced in the figures for cumulative net equities purchases by foreign investors, which show a broadly flat result from 2007 to 2012 (Figure 6). We surmise that this reflected many foreign investors effectively turning their backs on Japan and selling out. In our view, a lot of foreign investors—especially the larger funds with significant investing capacity—have cultivated a negative view of Japanese equities as an underperforming market in this period. Even given the heightened expectations of what Abenomics could deliver, we think there is likely to be a lag before fund managers take a fresh and serious look at the previously abandoned Japanese stock market. The recommendation to significantly raise weightings for Japanese equities from our global equity strategy team is suggestive that prevailing concerns about the Japanese stock market from an external viewpoint are being mitigated. We believe recommendations of this nature have the potential to encourage across-the-board purchasing activity in Japanese equities by persuading those foreign investors that have been on the sidelines of the relative attractiveness of the Japanese stock market. While currency movements and volatility in overseas markets are likely to cause related ups and downs, from this point of view we would argue that foreign investors are likely to remain net purchasers of Japanese equities for the foreseeable future.

Japan Equity Strategy 3 24 April 2013

Stocks foreign investors prefer As argued above, we think foreign investors are likely to maintain a strong preference for Japanese shares. The stocks that display the highest correlation with these activities are shown below. We derived this list using the following methodology:

■ Universe: TOPIX constituents, based on a 520-week (approx. 10-year) data sample

■ Size: Large-cap = TOPIX constituents with market cap of ¥500bn+

Medium/small-cap stocks = TOPIX constituents with market cap of ¥50–500bn

■ Selection method: Stocks ranked in descending order of size of correlation between the weekly TOPIX-relative returns of each stock from January 1995 to the present and the aggregate net foreign investor purchases for the Tokyo, Osaka and Nagoya markets The trend we observed was that securities firms, banks and other financials displayed the highest correlation with net foreign investor purchases, followed by the trading companies, real estate firms and the globally well-known electronics manufacturers.

Figure 7: Stocks preferred by foreign investors TOP30 (Large caps) 3month avg Correl Market Cap No of samples No Code Name TSE 33 industries traded value between (mil yen) (weeks) (mil yen) foreign investors 1 8604 NOMURA HOLDINGS INC Securities & Commodity Futures 2,866,922.0 57,117.5 0.34 954 2 8601 INC Securities & Commodity Futures 1,451,984.4 15,505.0 0.30 954 3 8316 SUMITOMO FINANCIAL GR Banks 6,278,407.0 51,765.4 0.26 538 4 8411 INC Banks 5,171,281.0 71,890.3 0.22 524 5 8306 MITSUBISHI UFJ FINANCIAL GRO Banks 9,118,129.0 68,435.8 0.22 625 6 8309 SUMITOMO MITSUI TRUST HOLDIN Banks 1,877,577.0 15,013.5 0.21 584 7 8591 ORIX CORP Other Financing Business 1,647,726.6 13,807.0 0.19 954 8 8766 HOLDINGS INC Insurance 2,366,287.5 9,890.9 0.19 575 9 6503 MITSUBISHI ELECTRIC CORP Electric Appliances 1,921,745.4 7,223.1 0.19 954 10 8002 CORP Wholesale Trade 1,195,703.4 10,288.5 0.17 954 11 8830 SUMITOMO REALTY & DEVELOPMNT Real Estate 2,256,647.5 16,466.3 0.16 954 12 8001 CORP Wholesale Trade 1,860,660.3 9,780.4 0.16 954 13 8303 LTD Banks 723,341.3 7,072.7 0.16 581 14 9984 SOFTBANK CORP Information & Communication 5,571,064.0 37,580.2 0.16 954 15 6501 HITACHI LTD Electric Appliances 2,991,913.8 19,371.3 0.16 954 16 6758 CORP Electric Appliances 1,647,454.9 56,657.2 0.16 954 17 6701 NEC CORP Electric Appliances 747,558.3 9,657.1 0.15 954 18 8815 CORP Real Estate 656,548.1 10,865.1 0.15 954 19 8802 CO LTD Real Estate 4,317,183.0 24,181.4 0.14 954 20 6502 CORP Electric Appliances 2,245,929.0 23,193.5 0.13 954 21 8801 CO LTD Real Estate 2,926,330.0 20,369.9 0.13 954 22 6981 CO LTD Electric Appliances 1,748,045.5 6,373.2 0.13 954 23 5411 JFE HOLDINGS INC Iron & Steel 1,289,091.8 12,220.9 0.12 550 24 7731 CORP Precision Instruments 906,788.1 10,087.8 0.12 954 25 8031 MITSUI & CO LTD Wholesale Trade 2,412,653.5 16,684.6 0.11 954 26 7202 MOTORS LTD Transportation Equipment 1,114,827.4 7,054.2 0.11 954 27 6702 LTD Electric Appliances 838,357.4 6,206.9 0.11 954 28 8035 LTD Electric Appliances 908,472.9 7,283.1 0.11 954 29 8058 MITSUBISHI CORP Wholesale Trade 2,863,872.0 18,305.5 0.11 954 30 7012 KAWASAKI HEAVY INDUSTRIES Transportation Equipment 543,365.1 5,578.6 0.11 954 Source: Credit Suisse

Japan Equity Strategy 4 24 April 2013

A similar trend was observed for the medium/small-cap universe, with securities firms and other financials leading the way, followed by the electric machinery and wholesale sectors.

Figure 8: Stocks preferred by foreign investors TOP30 (Mid-small caps) 3month avg Correl Market Cap No of samples No Code Name TSE 33 industries traded value between (mil yen) (weeks) (mil yen) foreign investors 1 8595 JAFCO CO LTD Securities & Commodity Futures 226,983.4 1,813.9 0.26 954 2 8511 JAPAN SECURITIES FINANCE CO Other Financing Business 90,982.7 983.3 0.21 954 3 8616 TOKAI TOKYO FINANCIAL HOLDIN Securities & Commodity Futures 242,984.1 1,270.0 0.20 954 4 8473 SBI HOLDINGS INC Securities & Commodity Futures 396,288.0 8,906.9 0.20 643 5 8624 ICHIYOSHI SECURITIES CO LTD Securities & Commodity Futures 62,914.8 592.9 0.20 954 6 8609 OKASAN SECURITIES GROUP INC Securities & Commodity Futures 248,608.7 1,978.2 0.20 954 7 4321 KENEDIX INC Services 169,089.5 36,559.9 0.19 581 8 8840 DAIKYO INC Real Estate 171,900.4 6,036.0 0.19 954 9 2768 CORP Wholesale Trade 187,724.9 1,564.7 0.19 523 10 6506 YASKAWA ELECTRIC CORP Electric Appliances 291,695.7 2,882.3 0.18 954 11 8628 CO LTD Securities & Commodity Futures 337,388.7 2,473.4 0.18 610 12 8613 MARUSAN SECURITIES CO LTD Securities & Commodity Futures 58,849.7 484.3 0.18 954 13 8804 CO LTD Real Estate 389,753.3 12,908.5 0.17 954 14 7735 MFG CO LTD Electric Appliances 128,511.0 2,836.4 0.15 954 15 5801 CO LTD Nonferrous Metals 175,960.6 1,768.2 0.15 954 16 6481 THK CO LTD Machinery 273,201.9 1,980.3 0.15 954 17 6103 OKUMA CORP Machinery 131,645.1 1,354.1 0.15 954 18 7729 TOKYO SEIMITSU CO LTD Precision Instruments 85,975.0 423.5 0.14 954 19 6976 CO LTD Electric Appliances 174,095.6 3,249.7 0.14 954 20 9715 TRANSCOSMOS INC Services 68,604.4 116.4 0.13 954 21 6967 SHINKO ELECTRIC INDUSTRIES Electric Appliances 122,330.6 902.1 0.12 954 22 6302 SUMITOMO HEAVY INDUSTRIES Machinery 260,559.6 2,702.7 0.12 954 23 6857 CORP Electric Appliances 298,751.5 4,107.6 0.12 954 24 1808 HASEKO CORP Construction 233,115.7 6,846.5 0.11 954 25 6141 MORI SEIKI CO LTD Machinery 135,891.2 853.4 0.11 954 26 6756 HITACHI KOKUSAI ELECTRIC INC Electric Appliances 111,113.6 674.0 0.11 954 27 8803 CO LTD Real Estate 89,734.4 787.0 0.11 954 28 5541 CO LTD Iron & Steel 96,906.5 1,344.9 0.11 954 29 6330 TOYO ENGINEERING CORP Construction 88,106.2 455.5 0.11 954 30 6753 SHARP CORP Electric Appliances 411,818.4 15,114.8 0.11 954 Source: Credit Suisse

Japan Equity Strategy 5 24 April 2013

(Reference) Stocks preferred by retail investors For reference purposes, we also compiled a list of the stocks preferred by retail investors using the same methodology as that used above for foreign investors. An entirely different trend was observed in this case, with retail investors preferring domestic-demand stocks. It is also interesting to note that Oriental Land and railway operators were popular large-cap stocks, while the preferred medium/small-cap stocks included many companies producing familiar food brands or other consumer lifestyle items. We believe this probably reflects the loyalty schemes offered by manufacturers of well-known brands to encourage consumers to become shareholders as well.

Figure 9: Stocks preferred by retail investors TOP30 (Large caps) 3month avg Correl No of Market Cap No Code Name TSE 33 industries traded value between samples (mil yen) (mil yen) individual investors (weeks) 1 2897 NISSIN FOODS HOLDINGS CO LTD Foods 535,634.4 1,000.4 0.35 954 2 9531 CO LTD Electric Power & Gas 1,399,810.1 5,669.4 0.35 954 3 9532 CO LTD Electric Power & Gas 872,944.6 3,824.5 0.35 954 4 4661 ORIENTAL LAND CO LTD Services 1,456,579.1 5,247.5 0.34 852 5 9502 CO INC Electric Power & Gas 1,020,268.0 4,171.0 0.33 954 6 9006 KEIKYU CORP Land Transportation 596,745.8 1,569.3 0.33 954 7 9504 CHUGOKU ELECTRIC POWER CO Electric Power & Gas 527,640.6 1,332.0 0.32 954 8 2802 CO INC Foods 853,454.3 3,730.9 0.32 954 9 2651 LAWSON INC Retail Trade 751,247.0 3,656.5 0.32 663 10 9020 EAST JAPAN RAILWAY CO Land Transportation 3,322,440.0 11,779.8 0.30 954 11 9007 CO Land Transportation 876,287.6 2,228.3 0.30 954 12 4452 KAO CORP Chemicals 1,757,549.8 6,429.4 0.30 954 13 9021 WEST JAPAN RAILWAY CO Land Transportation 924,867.1 4,732.2 0.30 861 14 8113 UNICHARM CORP Chemicals 1,252,015.9 4,875.8 0.30 954 15 9503 KANSAI ELECTRIC POWER CO INC Electric Power & Gas 1,166,845.1 9,153.3 0.28 954 16 4528 ONO PHARMACEUTICAL CO LTD Pharmaceutical 741,260.8 1,468.3 0.28 954 17 9506 TOHOKU ELECTRIC POWER CO INC Electric Power & Gas 508,414.3 2,550.1 0.27 954 18 5012 TONENGENERAL SEKIYU KK Oil & Coal Products 533,531.8 1,384.7 0.27 954 19 4508 MITSUBISHI TANABE PHARMA Pharmaceutical 832,582.8 2,035.5 0.27 954 20 2502 ASAHI GROUP HOLDINGS LTD Foods 1,158,671.8 6,192.9 0.27 954 21 9508 KYUSHU ELECTRIC POWER CO INC Electric Power & Gas 641,096.7 3,860.9 0.26 954 22 9041 KINTETSU CORP Land Transportation 809,360.1 2,280.7 0.26 954 23 9008 KEIO CORP Land Transportation 530,914.9 1,423.9 0.26 954 24 9022 CENTRAL JAPAN RAILWAY CO Land Transportation 2,383,420.0 5,741.9 0.25 809 25 9001 CO LTD Land Transportation 602,302.8 1,972.7 0.25 954 26 4502 TAKEDA PHARMACEUTICAL CO LTD Pharmaceutical 4,232,610.5 16,013.1 0.24 954 27 4530 HISAMITSU PHARMACEUTICAL CO Pharmaceutical 531,020.1 1,150.8 0.23 954 28 9042 HANKYU HANSHIN HOLDINGS INC Land Transportation 789,543.7 1,681.0 0.23 954 29 4519 CHUGAI PHARMACEUTICAL CO LTD Pharmaceutical 1,414,885.9 3,299.6 0.23 954 30 4503 INC Pharmaceutical 2,644,000.3 10,058.5 0.22 954 Source: Credit Suisse

Japan Equity Strategy 6 24 April 2013

Figure 10: Stocks preferred by retail investors TOP30 (Mid-small caps) 3month avg Correl No of Market Cap No Code Name TSE 33 industries traded value between samples (mil yen) (mil yen) individual investors (weeks) 1 9044 NANKAI ELECTRIC RAILWAY CO Land Transportation 208,459.3 199.3 0.43 954 2 2220 KAMEDA SEIKA CO LTD Foods 56,443.9 47.8 0.43 954 3 7630 ICHIBANYA CO LTD Retail Trade 66,645.5 145.3 0.42 687 4 9045 KEIHAN ELECTRIC RAILWAY CO Land Transportation 237,683.7 267.4 0.41 954 5 8153 MOS FOOD SERVICES INC Wholesale Trade 61,651.1 152.7 0.41 954 6 9048 NAGOYA RAILROAD CO LTD Land Transportation 266,238.6 729.4 0.40 954 7 9003 SOTETSU HOLDINGS INC Land Transportation 187,948.6 380.2 0.40 954 8 2580 COCA-COLA CENTRAL JAPAN CO Foods 64,580.0 181.3 0.39 613 9 2811 KAGOME CO LTD Foods 184,391.0 566.7 0.37 954 10 4559 ZERIA PHARMACEUTICAL CO LTD Pharmaceutical 73,304.5 30.1 0.37 746 11 2809 KEWPIE CORP Foods 224,298.0 636.6 0.37 954 12 9536 SAIBU GAS CO LTD Electric Power & Gas 86,647.0 49.3 0.36 954 13 9031 NISHI-NIPPON RAILROAD CO LTD Land Transportation 157,926.8 223.8 0.35 954 14 8278 FUJI CO LTD Retail Trade 62,693.8 46.3 0.35 954 15 2810 HOUSE FOODS CORPORATION Foods 181,910.2 405.3 0.34 954 16 4912 LION CORP Chemicals 169,000.2 241.5 0.33 954 17 2607 FUJI OIL CO LTD Foods 136,345.5 434.6 0.32 954 18 9533 GAS CO LTD Electric Power & Gas 318,844.4 755.2 0.32 954 19 2004 SHOWA SANGYO CO LTD Foods 52,752.0 36.2 0.32 954 20 1377 SAKATA SEED CORP Fishery, Agriculture & Forestr 65,209.3 101.1 0.31 954 21 4527 ROHTO PHARMACEUTICAL CO LTD Pharmaceutical 162,736.2 538.7 0.31 954 22 8279 YAOKO CO LTD Retail Trade 84,729.1 49.9 0.31 954 23 9505 HOKURIKU ELECTRIC POWER CO Electric Power & Gas 299,935.8 1,145.8 0.30 954 24 4536 SANTEN PHARMACEUTICAL CO LTD Pharmaceutical 381,007.3 1,468.2 0.30 954 25 2572 MIKUNI COCA-COLA BOTTLING CO Foods 60,143.1 88.2 0.30 954 26 8008 F&A AQUA HOLDINGS INC Wholesale Trade 56,169.5 95.9 0.29 757 27 2206 EZAKI GLICO CO LTD Foods 159,780.7 239.6 0.29 954 28 2590 DYDO DRINCO INC Foods 71,575.9 185.6 0.29 609 29 2664 CAWACHI LTD Retail Trade 50,248.5 183.8 0.29 655 30 9861 YOSHINOYA HOLDINGS CO LTD Retail Trade 74,653.0 320.8 0.29 954 Source: Credit Suisse

Japan Equity Strategy 7 24 April 2013

Companies Mentioned (Price as of 23-Apr-2013) Pacific Metals (5541.T, ¥493) Cawachi (2664.T, ¥2,076) Coca-Cola CJ (2580.T, ¥1,340) Daikyo (8840.T, ¥410) Dydo Drinco (2590.T, ¥4,290) Ichibanya (7630.T, ¥4,045) JSF (8511.T, ¥960) Jafco (8595.T, ¥4,765) Kagome (2811.T, ¥1,826) Kameda Seika (2220.T, ¥2,547) Keikyu (9006.T, ¥1,096) Kenedix (4321.T, ¥79,500) Matsui Securities (8628.T, ¥1,241) Mikuni Coca-Cola (2572.T, ¥1,049) Nagoya Railroad (9048.T, ¥299) Nishi-Nippon Rr (9031.T, ¥399) Oriental Land (4661.T, ¥16,190) Sakata Seed (1377.T, ¥1,256) Shinsei Bank (8303.T, ¥265) Sotetsu Holdings (9003.T, ¥388) Tokyo Seimitsu (7729.T, ¥1,950) TonenGeneral S (5012.T, ¥941) Toyo Engr (6330.T, ¥459) Yoshinoya Hldg (9861.T, ¥111,300) Zeria Pharma (4559.T, ¥1,517) Isuzu Motors (7202.T, ¥647) Asahi Group Holdings (2502.T, ¥2,333) Astellas Pharma (4503.T, ¥5,590) Advantest (6857.T, ¥1,387) Orix (8591.T, ¥1,415) (6103.T, ¥778) Sharp Corp. (6753.T, ¥356) JFE Holdings (5411.T, ¥1,955) Sony (6758.T, ¥1,634) Softbank (9984.T, ¥4,415) transcosmos (9715.T, ¥1,387) Nikon (7731.T, ¥2,203) Unicharm (8113.T, ¥6,100) Lawson (2651.T, ¥7,350) Mitsui Fudosan (8801.T, ¥3,435) Mitsubishi Estate (8802.T, ¥3,180) Mitsubishi Electric (6503.T, ¥901) Chugai Pharmaceutical (4519.T, ¥2,447) (9008.T, ¥811) Sumitomo Realty & Development (8830.T, ¥4,885) Sumitomo Heavy Industries, Ltd. (6302.T, ¥414) Santen Pharmaceutical (4536.OS, ¥4,545) Furukawa Electric (5801.T, ¥240) Ajinomoto (2802.T, ¥1,331) Daiwa Securities Group (8601.T, ¥846) Dainippon Screen Mfg. (7735.T, ¥475) Taiyo Yuden (6976.T, ¥1,429) Yaskawa Electric Corporation (6506.T, ¥1,107) Fujitsu (6702.T, ¥420) Odakyu Electric Railway (9007.T, ¥1,184) Ono Pharmaceutical (4528.OS, ¥6,250) Kawasaki Heavy Industries (7012.T, ¥330) Shinko Electric Industries (6967.T, ¥885) NEC (6701.T, ¥264) Nissin Foods Holdings (2897.T, ¥4,555) Hitachi Kokusai Electric (6756.T, ¥1,074) Hitachi (6501.T, ¥613) Murata Manufacturing (6981.OS, ¥7,850) Tokyo Electron (8035.T, ¥4,680) Tokyo Tatemono (8804.T, ¥974) Tokio Marine Holdings (8766.T, ¥2,980) Tokyu Land (8815.T, ¥1,294) Toshiba (6502.T, ¥535) Mori Seiki (6141.OS, ¥1,111) Takeda Pharmaceutical (4502.T, ¥5,260) Mitsubishi Tanabe Pharma (4508.T, ¥1,461) Kao (4452.T, ¥3,315) Nomura Holdings (8604.T, ¥759) HASEKO Corporation (1808.T, ¥159) THK (6481.T, ¥2,041) Showa Sangyo (2004) Ezaki Glico (2206) Fuji Oil (2607) Sojitz (2768) Kewpie (2809) House Foods (2810) Rohto Pharma (4527)

Japan Equity Strategy 8 24 April 2013

Hisamitsu Pharm (4530) Lion (4912) Itochu Corp (8001) Marubeni Corp (8002) F&A Aqua HD (8008) Mitsui & Co (8031) Mitsubishi Corp (8058) Mos Food Service (8153) FUJI Ehime (8278) Yaoko (8279) Mitsubishi UFJ Financial Group (8306) Sumitomo Mitsui Trust Holdings (8309) Sumitomo Mitsui Financial Group (8316) Mizuho Financial Group (8411) SBI Holdings (8473) OkasanSecs Grp (8609) Marusan Sec (8613) Tokai Tokyo FH (8616) Ichiyoshi Secs (8624) Heiwa Rl Est (8803) Tobu Railway (9001) East Japan Railway Company (9020) West Japan Railway Company (9021) Central Japan Railway Company (9022) Kintetsu (9041) Hankyu Hanshin H (9042) Nankai Elec Rwy (9044) Keihan Elec Rwy (9045) Chubu Electric Power (9502) Kansai Electric Power (9503) Chugoku Electric Power (9504) Hokuriku Electric Power (9505) Tohoku Electric Power (9506) Kyushu Electric Power (9508) Tokyo Gas (9531) Osaka Gas (9532) Toho Gas (9533) Saibu Gas (9536)

Disclosure Appendix

Important Global Disclosures Tomohiro Okawa and Koshiro Tsukiyama, 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. The analyst(s) responsible for preparing 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 activities As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals t he less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as w ell as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Austr alia, New Zealand are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Japan Equity Strategy 9 24 April 2013

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sec tor. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 43% (53% banking clients) Neutral/Hold* 39% (47% banking clients) Underperform/Sell* 15% (40% banking clients) Restricted 3% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relati ve basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objec tives, current holdings, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit 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 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.

Please refer to the firm's disclosure website at www.credit-suisse.com/researchdisclosures for the definitions of abbreviations typically used in the target price method and risk sections.

Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse Securities (Japan) Limited ...... Tomohiro Okawa ; Koshiro Tsukiyama

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at www.credit- suisse.com/researchdisclosures or call +1 (877) 291-2683.

Japan Equity Strategy 10 24 April 2013

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