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Investment Monthly | Japan edition / Credit Suisse Securities (Japan) Ltd. | June 2021

Japan investment strategy Japan asset allocation Global investment strategy Beware of taking on too much risk Stay neutral on global equities Taking profit on commodities page 3 page 5 page 8

Important Information This report represents the views of the Investment Strategy Department of CS and has not been prepared in accordance with the legal requirements designed to promote the independence of investment research. It is not a product of the Credit Suisse Research Department even if it contains published research recommendations. CS has policies in place to manage conflicts of interest including policies relating to dealing ahead of the dis- semination of investment research. These policies do not apply to the views of Investment Strategists contained in this report. Please find further important information at the end of this material. Singapore: For accredited investors only. Hong Kong: For professional investors only. Australia: For wholesale clients only. Editorial In this issue

Japan investment strategy 3 Beware of taking on too much risk

Japan asset allocation 5 Stay neutral on global equities

Investment Solutions 6 Michael Strobaek Burkhard Varnholt Global Chief Investment Officer Chief Investment Officer – Swiss Univer- 2021 investment theme: Lessons from the sal Bank pandemic

Economics 7 The recovery from the coronavirus pandemic is gaining further A broadening recovery pace, with global growth continuing to accelerate as economies reopen. Though investors are no longer as worried about COVID-19 as a few months ago, new concerns have become Global investment strategy 8 top of mind. A spike in inflation, particularly in the USA, has Taking profit on commodities fueled worries that central banks may start withdrawing their stimulus sooner than anticipated. Special topic 9 Our latest Investment Committee meeting allowed us to take Spotlight on the EU emissions market stock not only of the increase in inflation, but also our overweight in commodities. Commodities have had an exceptional Special topic run, gaining over 20% this year following a sharp rebound in 10 Climate Change Supertrend – Focus on the second half of last year. Having an overweight allocation agriculture & food to this asset class in portfolios since January 2020, we have been able to clearly benefit from this rally. Now, however, signs of potential weakness seem to be emerging, which is Fixed income 11 why we decided to take profit on commodities and lock in the Remain cautious on global treasuries strong gains we have made. As for equities, we expect economic growth to remain a positive driver in the medium term. Yet our tactical sentiment and positioning indicators still sug- Equities 12 gest an elevated level of investor complacency, which is why Equities stay at strategic allocation we prefer to keep the asset class at benchmark allocations for the time being. We retain a cyclical tilt in portfolios thanks Alternative investments 13 to our continued underweight in government bonds, which Realizing gains on commodities we still consider unattractive.

With the Credit Suisse Sustainability Week coming up at the Foreign exchange 14 end of June, our two special topics this month touch upon Turn neutral on GBP, but keep cyclical tilt efforts to decarbonize the economy. One provides insights into carbon markets, specifically the European Union’s emissions trading scheme, while the other looks at agriculture and Forecasts 15 sustainable food production. At a glance

As always, we hope you enjoy the read! Editorial deadline: 16 June 2021

Investment Monthly | Japan edition / Credit Suisse Securities (Japan) Ltd., June 2021 2 Japan investment strategy Beware of taking on too much risk

Investors should take care not to fall into complacent optimism. Our Supertrends offer a long-term perspective on ESG investment.

Soichiro Matsumoto Flagging domestic demand to be offset by robust for- Chief Investment Officer Japan eign demand As the COVID-19 pandemic continues to spread in Japan, Potential for upside surprises shrinks as economic re- the current state of emergency has been extended, and the covery expands domestic economy continues to face challenging conditions. In the wake of the USA and the UK, economic recovery is Due to delays in vaccine approvals, the start of mass vaccina- gaining momentum in the Eurozone due to increased vaccinations has been delayed, and this in turn has delayed Japan’s tion. However, with increased confidence in the recovery, the economic recovery. The fact that a vaccine was approved in potential for upside surprises appears to be shrinking. We late May and the speed of vaccination is accelerating, bodes expect the market’s exuberance, will subside gradually. That well for the future. However, there are concerns that infec- said, investors will continue to seek out pockets of outperfor- tions may spread again during the Tokyo Olympic and Para- mance that might have been overlooked. Nevertheless, as lympic Games, and pressure to curb the resumption of eco- the market euphoria ebbs, investors’ assessments of the nomic activities may remain until the end of the Games. Under longevity of profit growth as well as valuations of financial these circumstances, a rise in the vaccination rate is unlikely assets in this growth cycle are also likely to normalize. to lead directly to higher expectations of economic recovery, as it did in the USA and Europe. We will likely have to wait Market sentiment in the near term is likely to remain some- until the second half of the year for the market to see a recov- what fragile. Although we believe that the medium term ery in the domestic economy. backdrop for risk assets remains favorable, long-term investors should be cautious of adding more risk to their portfo- On the other hand, foreign demand remains robust. Supported lios at this juncture. by the global economic recovery, business confidence in the manufacturing sector (PMI index) has recovered to pre-pan- Resumption of healthy inflationary pressure demic and pre-consumption tax hike levels. In the manufac- The view that the surge in inflation is temporary is gaining turing sector, higher vaccination rates will support increased acceptance gradually in the wider market, and concerns about production activity, accelerating the recovery. A recovery in early tapering have begun to subside; the view that we have production and investment is starting to produce positive up- held – that inflation is set for a gradual increase – seems to side surprises for the Japanese economy, and the Citi Eco- be gaining traction in the market. However, as the recovery nomic Surprise Index for Japan has started to outshine its and the steady rise in inflation start to be seen as being on US and European counterparts. a firm footing in coming months, our economists believe that the US Federal Reserve will begin to consider tapering its Japan equity: A mixture of hope and anxiety asset purchases. The market’s recent movements based on The manufacturing industry accounts for a large percentage concerns about early tapering have been helpful for central of the Japanese stock market. Hence, Japanese stocks are banks seeking to move smoothly toward an exit strategy. seen as highly linked to the global economic cycle. In addition, stability in exchange rates, such as the USD/JPY rate, is also Business investment expansion is key to growth sus- a positive for the earnings outlook of manufacturing compa- tainability nies with global operations. On the other hand, Japan’s do- We believe the semiconductor sector is currently experiencing mestic economy remains downbeat, curbing investor senti- structural tailwinds in addition to cyclical ones. They are likely ment. to recover quickly from a brief cyclical decline and maintain long-term growth over the next three to five years, as the With general shareholders’ meetings reaching their peak in digital transformation progresses and long-term demand in- June, companies are likely to pay more attention to returning creases. In addition to increases in manufacturing capacity, profits to shareholders now. An increase in dividends and strategic relocations to address geopolitical risks and near- share buyback programs will have a positive effect on investor shoring as part of supply chain restructuring will also boost sentiment on Japanese stocks. the appeal of semiconductor manufacturing equipment and related materials sectors.

Investment Monthly | Japan edition / Credit Suisse Securities (Japan) Ltd., June 2021 3 Supertrends: A long-term perspective on SDG initiatives The economic recovery and changing consumption styles are and ESG investment likely to increase investor interest in economically sensitive In our series of long-term investment themes, called Su- value stocks and thematically positioned stocks of companies pertrends, published since 2017, we have focused on long- that fit in with the new market landscape. As companies be- term structural changes in the economy, which are likely to come more aggressive in mergers & acquisitions (M&A) and be triggered by demographic changes in the world’s major other investments to reform their business structure, private countries, as well as problematic debt, which continues to equity too can be an interesting investment option. accumulate. Companies are stepping up their efforts to become more environmentally friendly in order to survive in the Accelerating changes in a post-pandemic world midst of these long-term structural changes.  Investment opportunities provided by receding globalism: Policies aimed at addressing Japan’s social fragmentation Domestic inequality and social fragmentation, exacerbated are expected to provide long-term investment opportunities. by globalization, could deprive major economies of their growth We now focus on strategies including infrastructure invest- potential over the long term. Over-consumption and rapid ment funds, private equity and the long-term themes dis- economic development in emerging countries, have led to cussed in the relevant Supertrends series report. the destruction of the environment. The resulting increase in the frequency of large-scale natural disasters has burdened  Investment lesson – increased awareness of risk hedging: affected areas. Countries that ignore these due to an unwill- A growing awareness of the importance of risk prepared- ingness to bear short-term costs, do so at the peril of the ness is expected to lead to greater global asset diversifica- world at large. Many sustainable development goals (SDGs) tion as part of a long-term investment strategy. This is initiatives are closely related to these long-term structural because such a strategy can be expected to stabilize re- changes that we have discussed in our Supertrends series. turns effectively, without incurring a high additional cost.

 Investment themes related to the advent of a new digital Many of the investment themes we have covered in our Su- society: The pandemic has considerably changed the way pertrends series overlap with environmental, social and gover- people interact with each other on a socioeconomic level. nance (ESG) investing, which is aligned with SDGs. This has accelerated the rate of digitalization across the economy. Our Supertrends series reports explore a number Recommended investment strategies of related investment themes and strategies.

Market optimism remains high. As part of a global asset allo-  Investment opportunities related to full-scale efforts to cation strategy, we suggest investors avoid additional risk at improve sustainability: The world as a whole is now more this time and stick to their strategic asset allocations (SAA). amenable to accepting the costs of improving sustainability. Nevertheless, the elevated volatility may present an opportu- One of the best examples is efforts to create a carbon- nity to execute yield-seeking strategies. free society. The adoption of investment metrics that incor- porate an awareness of ESG will also increase. Additionally, Strategies for a long-term policy support regime our “Climate change” Supertrend encompasses pertinent investment ideas. As monetary easing measures are kept in place, alternative strategies to secure yield are attracting investor attention. For each individual investor, demand for investments that convert Reaffirming the appeal of Supertrends acceptable risk into yield will remain high. Increased volatility After the pandemic, societies are changing at an accelerating will provide an opportunity for strategies that emphasize pace. Our long-term investment themes, called Supertrends, coupons payments. Some investors may be able to benefit can be a suitable option for the prudent investor in such times. from the decrease in currency hedging costs due to rising US long-term interest rates and narrowing interest rate differ- Examining tail risks: Runaway inflation and sharply ris- entials. In addition, strategies that aim to secure yields through ing interest rates range trades and foreign currency deposits by leveraging In response to the pandemic, global debt has ballooned to options, will also come into play as the risk of fluctuations in unprecedented levels. Thanks to historically low interest rates, major currencies, such as the USD, EUR and JPY, has de- the burden of this debt is sustainable. However, investors creased due to the shrinking interest rate gap. should be aware of related risks. Runaway inflation and a sharp rise in interest rates are likely to remain as tail risks for Strategies for a nascent economic recovery the market. (16/06/2021) As the economy recovers and interest rates rise moderately, bond prices will see some downward pressure. Investment in credit (corporate bonds) remains relatively attractive, but for most credits, spreads have already narrowed and thus reduced their appeal as an investment.

Investment Monthly | Japan edition / Credit Suisse Securities (Japan) Ltd., June 2021 4 Japan asset allocation Stay neutral on global equities

Tactical downside risk still remains for equities.

Soichiro Matsumoto Investment map (asset classes vs. regions) Chief Investment Officer Japan

Global equity allocation stays neutral versus benchmark Conditions are likely to remain favorable for equities and other risk assets on an absolute basis due to improving fundamentals and prolonged policy support. However, we maintain a cautious view on additional risk-taking as market sentiment is deep in euphoria territory.

Source: Credit Suisse (16/06/2021)

JPY international tactical asset allocation (TAA; balanced) Balanced TAA Vs. benchmark BenchmarkSAA 2021 May June Change May June Liquidity 6.5% 6.5% 0.0% 1.5% 1.5% 5.0% JPY 6.5% 6.5% 0.0% 1.5% 1.5% 5.0% Fixed income 30.5% 30.5% 0.0% -2.0% -2.0% 32.5% JPY 3.5% 3.5% 0.0% -0.5% -0.5% 4.0% Global corporates 18.0% 18.0% 0.0% -1.5% -1.5% 19.5% Global high yield 3.0% 3.0% 0.0% 0.0% 0.0% 3.0% Emerging markets bond USD 3.0% 3.0% 0.0% 0.0% 0.0% 3.0% Emerging markets corporate 3.0% 3.0% 0.0% 0.0% 0.0% 3.0% USD Equity 50.5% 50.5% 0.0% 0.5% 0.5% 50.0% Japan 19.0% 19.0% 0.0% 0.0% 0.0% 19.0% World (ex. Japan) 31.5% 31.5% 0.0% 0.5% 0.5% 31.0% Switzerland 0.5% 0.5% 0.0% 0.0% 0.0% 0.5% Eurozone 2.0% 2.0% 0.0% -0.5% -0.5% 2.5% North America 15.0% 15.0% 0.0% 0.0% 0.0% 15.0% United Kingdom 2.0% 2.0% 0.0% 1.0% 1.0% 1.0% Australia 0.5% 0.5% 0.0% 0.0% 0.0% 0.5% Emerging markets 4.0% 4.0% 0.0% 0.0% 0.0% 4.0% LatAm 0.0% 0.0% 0.0% -0.5% -0.5% 0.5% APAC 4.0% 4.0% 0.0% 1.0% 1.0% 3.0% EMEA 0.0% 0.0% 0.0% -0.5% -0.5% 0.5% Themes 7.5% 7.5% 0.0% 0.0% 0.0% 7.5% Alternative in- 12.5% 12.5% 0.0% 0.0% 0.0% 12.5% vestments Real estate Japan 2.5% 2.5% 0.0% 0.0% 0.0% 2.5% Hedge fund 2.5% 2.5% 0.0% 0.0% 0.0% 2.5% Private equity 7.5% 7.5% 0.0% 0.0% 0.0% 7.5% Total 100.0% 100.0% 0.0% 0.0% 0.0% 100.0%

Source: Credit Suisse

Investment Monthly | Japan edition / Credit Suisse Securities (Japan) Ltd., June 2021 5 Investment Solutions 2021 investment theme: Lessons from the pandemic

In an environment where uncertainty over the economic outlook cannot be easily dis- pelled, we highlight investment strategies that should enable investors to deal with unexpected risks and changing circumstances.

Maki Shimizu Preparing for unexpected risks Investment Strategist - Japan Strategy To mitigate the risks from ongoing societal changes and prevailing economic disparities, we would employ a multi-asset Preparing for unexpected risks approach; these are particularly well-suited to reducing asset In the wake of the global outbreak of COVID-19, one of our price volatility. With regard to mutual funds that fit this descrip- investment themes this year – Lessons from the pandemic tion, we have picked out Pictet’s Multi-Asset Allocation Fund – has been focused on the importance of risk management and the the CS Portfolio Fund. While the former is JPY-de- in long-term investing. While the market perceives the rapid nominated and has a roughly balanced allocation between acceleration in inflation recently as a tail risk for 2021, we stocks and bonds, the latter is USD-denominated and offers are of the view that the upward pressure on prices is due to three variants featuring different allocations across the major transitory factors such as the rebound from last year’s decline asset classes. and supply constraints. However, what determines the market’s medium-term inflation outlook is both the pace of the In general, equities represent the best investment vehicle to economic recovery and the longevity of policy support. This deal with the prospect of reflation. However, from the per- might result in vacillating sentiment in a market that attempts spective of long-term, stable management, we favor a multi- to anticipate multiple factors under highly uncertain conditions. asset approach that combines low-correlation asset classes, and that can be employed to achieve higher returns. Further- Another risk factor that cannot be overlooked is geopolitical more, our list of Supertrends stocks also allows investors to risk. In addition to trade frictions, the pandemic-induced diversify their equity risk by investing across multiple curren- supply-chain restructuring and increased technological com- cies and sectors, while being well-positioned to benefit from petition have the potential to intensify tensions between na- long-term structural changes in the market. Such diversifica- tions. Against this backdrop, we remain neutral on equities tion may have contributed to the outperformance of strategies in a portfolio context, while reaffirming its optimistic global vis-a-vis the corresponding broader benchmarks, notwithstand- growth outlook. In this environment, we need to ensure our ing the market volatility in connection with the pandemic. We preparedness for uncertainty in light of market factors that believe that investors can enhance the stability of their portfo- make it difficult to determine a clear direction. lios by adopting the aforementioned investment strategy to better manage and mitigate risks. (15/06/2021)

Japan investment themes 2021 Sub-themes Investment solutions

The world after the pandemic Extended policy support Yield-securing strategy, Growth stocks, Gold Economic recovery Credit, Supertrends, Equity L/S, Private equity, Asian equities and bonds Retreating globalism Infrastructure funds, Private equity, Supertrends Lessons from the pandemic Multi-asset management, Hedged investment (low risk) Arrival of digital society Thematic stocks: US-China top stocks from Supertrends Push for a carbon-free society Climate change Supertrend Green bonds, ESG funds

Source: Credit Suisse

Investment Monthly | Japan edition / Credit Suisse Securities (Japan) Ltd., June 2021 6 Economics A broadening recovery

The global economy is continuing to recover from the coronavirus pandemic. We expect global GDP growth of 5.9% this year and 4% next year. Inflation has picked up, too, with US core inflation at its highest level in almost 30 years.

James P Sweeney Tier 2 is 3% to 4% core inflation. Getting there likely means Chief Economist and Regional CIO Americas wage pressures lead to accelerating inflation for in-person Wenzhe Zhao services in addition to goods. In tier 2, the Fed might well Global Economist keep its policy stance, but could bring forward asset-purchase reductions and the first rate hikes by a few months. Tier 2 Global growth continues to accelerate. Growing vaccination risks somewhat more persistent inflation, and thus higher coverage is facilitating a broadening services recovery, while terminal policy rates. Recent consumer price data has boosted global manufacturing is accelerating after winter headwinds. the likelihood of tier 2, making it a sensible base case. The US recovery has outpaced that of other major economies, resulting in increasing price pressures. Extreme consumer Tier 3 is above 4% core inflation. We see this as a tail risk. demand, record imports, drawn down inventories and global To get to Tier 3, we likely must see higher inflation in sticky supply shortages have led to increasing goods prices. There services categories such as housing. are price pressures in the services sector too, as many companies see demand increasing faster than supply can follow. In our view, Tier 1 is truly temporary, tier 2 is more likely to lead to above 2% inflation for a longer period, and tier 3 is Three tiers of US inflation risk likely to create so much volatility and emergency policy reac- US core inflation hit 3.8% YoY in May, the highest level since tion that it would likely lead to a major negative economic 1992. The biggest contributions to inflation are from the impact. sectors most affected by global supply bottlenecks and easing pandemic restrictions. As the Federal Reserve (Fed) looks to Tapering nears exit ultra-accommodative policy, investors are asking what The May US inflation report seems likely to trigger Fed dis- level of inflation might persist. We find it useful to classify cussions of reducing asset purchases, particularly for mort- three tiers of upside inflation risk in the next 6 to 12 months. gages, where the market is extraordinarily tight. An early mortgage taper could come in Q4, with reduced treasury Tier 1 is 2% to 3% core inflation over the next year. This is purchases following 3 to 6 months later if inflation risk remains significantly higher than average inflation over the past 25 in tier 2. We expect rate hikes in 2023. years, but not problematic. This level of inflation risk signals a temporarily tight goods sector with various pandemic-related Fed tapering is nearing, but global demand for government supply problems and demand distortions. In our view, demand debt should remain strong for now. Near-term demand is for consumer goods is likely to fall as services spending re- likely to come from the still very dovish European Central sumes, and production problems will gradually be worked out, Bank (ECB). The ECB said at its June meeting that the recent so these are mostly temporary phenomena. elevated pace of bond purchases would continue for at least the next three months, despite an improving economic outlook. (11/06/2021)

Investment Monthly | Japan edition / Credit Suisse Securities (Japan) Ltd., June 2021 7 Global investment strategy Taking profit on commodities

Commodities have had an exceptional run. Though the backdrop stays supportive, peak tightness might be near. As a result, we are taking profit and shifting to a neutral return outlook. We stay neutral equities and continue to view government bonds as unattractive.

Philipp Lisibach Besides geopolitical risks, inflation has become a focal point Chief Global Strategist in markets, with US core inflation (excluding volatile energy and food prices) recently moving above 3%. Although we The Credit Suisse Investment Committee (IC) decided to take continue to believe that the period of elevated inflation will profit on commodities in our multi-asset portfolios. Strong prove temporary, we also acknowledge the difficulty in pre- policy stimulus and the related economic acceleration have dicting the near-term outlook, as not only large base effects, helped commodities mark new multi-year highs, building on but also several other exceptional factors are currently driving their strong recovery since the middle of last year. Year-to- inflation, including strong end demand bolstered by fiscal date, the broad commodity index (BCOM) has gained more stimulus, supply chain bottlenecks, and difficult-to-quantify than 20%. Although the global reflationary environment should inflationary impulses from economic reopening efforts. Should remain a positive backdrop, there now are signs that point to another round of high inflation indicators prompt central banks, potential temporary weakness: logistical bottlenecks appear first and foremost the US Federal Reserve, to indicate less to be easing, with the Baltic Dry Index, which measures patience to keep monetary conditions easy, markets could shipping costs, peaking in early May, for instance. Moreover, be caught rather off guard. some short-cycle supply responses are in the making, like in agriculture, where farmers increased spring plantings. In base Government bonds at underweight metals, softer demand from China after a period of restocking Despite the reflationary backdrop, real bond yields remain might lead to weaker prices ahead. With prices having moved extremely low, indicating very rich valuations. The IC thus closer to the highs reached in previous commodity bull mar- maintains the view that government bonds are unattractive, kets, the IC decided to take profit and sell BCOM positions with yields expected to move higher over the course of the in portfolios. year. Allocations are kept at underweight, which keeps a cyclical tactical tilt in portfolios even after taking profit on com- Equities kept at strategic allocation modities. Besides, on a regional level, equity allocations re- Strong growth is expected to remain a positive driver for eq- main tilted toward more cyclically exposed markets such as uities over the medium term, with Europe joining the USA in Germany, Spain and the UK. In credit markets, the IC main- the growth acceleration as economies reopen. This is expect- tains neutral allocations to investment grade as well as high ed to lead to further strong earnings growth. However, our yield bonds. tactical sentiment and positioning indicators still point to an elevated level of investor complacency, suggesting higher downside risk to the news flow than usual. The IC thus re- frains from moving to an outright overweight in equities in Watch a video featuring the highlights of the portfolios at this juncture. Credit Suisse investment strategy: www.credit-suisse.com/cio/film

(14/06/2021)

Investment Monthly | Japan edition / Credit Suisse Securities (Japan) Ltd., June 2021 8 Special topic Spotlight on the EU emissions market

Efforts to accelerate the decarbonization of economies have boosted carbon prices. Investors have taken note, with carbon offsets offering a promising avenue to address the “E” of ESG (environmental, social and governance) considerations.

Fabian Deriaz tax would improve the relative competitiveness of domestic Commodity Strategist companies and help deal with higher carbon prices. In terms Stefan Graber of coverage, the maritime sector is set to be included, while Head of Commodity Strategy road transportation and buildings may be subsumed in a par- allel ETS scheme. Beyond these imminent steps by the EU, Carbon markets have moved into the spotlight amid increased the global climate summit COP-26 taking place in November efforts to decarbonize economies. Investor interest has also will also discuss carbon markets and may provide additional grown rapidly. The world’s largest and most liquid carbon impetus – not just for Europe but globally, as several regional market is the EU emissions trading scheme (ETS), which is initiatives are being implemented. Europe’s key tool to reduce greenhouse gas emissions. Specifically, the EU sets a limit on emissions that covered Volatility is high installations and entities can emit collectively each year, while It is worth noting that volatility in carbon pricing tends to be the cap is gradually reduced over time. For each ton of CO2 high – similar to natural gas. Recent price strength (EUA equivalent companies emit, they must deliver a European prices crossed EUR 50/ton in May) suggests that at least Emission Allowance (EUA), which is a permit to pollute. These some additional measures were likely priced in. That said, EUAs are handed out (auctioned or allocated) by the EU and political pressure to deliver on green policies is high and there are tradable, effectively setting a carbon price. is a consensus among government agencies and consultants that carbon prices remain too low to achieve the current goals. Ambitious climate targets require higher carbon prices This is especially true for global prices, while the EU is more Chronic oversupply in the early days of the scheme’s exis- advanced by comparison. Specifically, to meet the goals set tence kept prices suppressed. After several reform steps, forth in the 2015 Paris Agreement, carbon prices would need prices have been gradually shifting higher. In recent months, to be at least an estimated USD 50–100 / mt of CO2 EUAs started to lift off in earnest on a combination of recov- equivalent by 2030 or higher if more aggressive targets are ering industrial demand, investor buying and expectations of pursued. further reforms. This followed recent announcements by the EU to step up its carbon reduction targets. Amendments to Investor interest is growing the scheme are scheduled to be discussed in July. Investors, still a small group relative to open interest, act as liquidity providers for effective risk transfers and are becoming Among the possible measures, the EU might increase the increasingly important in price formation. ESG considerations pace at which it reduces supply each year and reinforce the are playing a key role as carbon offsets (which can be struc- Market Stability Reserve, a sort of central bank for EUAs. A tured in various formats) are seen as a promising way to ad- carbon border adjustment mechanism, which is a carbon tax dress carbon footprints of investor portfolios, especially for on imported goods, is also likely to be implemented. Such a traditional commodity exposure. (11/06/2021)

Investment Monthly | Japan edition / Credit Suisse Securities (Japan) Ltd., June 2021 9 Special topic Climate Change Supertrend – Focus on agriculture & food

Our Climate Change Supertrend focuses on the decarbonization of the economy. It also looks at agriculture, an industry that accounts for 25% of global greenhouse gas emissions. This, combined with a growing population but a planet that remains the same in size, represents a huge challenge. Sustainable food production, a change in people’s diets and efficient agriculture are solutions to substantially improve the CO2 footprint of this sector.

Daniel Rupli Solution 2: Get a smart tractor Head of Single Security Research The combination of continued population growth, rising spending power and declining arable land per capita suggests The Credit Suisse Research Institute has just published a that a shift in diet alone may not be enough to make the food thought leadership piece providing a deep dive into the chal- system more sustainable. Further productivity improvements lenges surrounding food sustainability. With the world’s pop- across the food supply chain in both developed and emerging ulation set to rise to about ten billion by 2050, it is clear that economies can be achieved by a large-scale adoption of smart a change in what we eat, how much we eat and how we agriculture. For example, the Ellen MacArthur Foundation produce food is paramount. Importantly, it also means that estimates that vertical farming could provide 80% of food healthy food must become more available and more afford- demand in urban areas. Precision farming through the use able, as more than three billion people around the world are of artificial intelligence, drones, autonomous machinery and still unable to afford a healthy diet. As such, the following smart irrigation systems could yield productivity increases of three solutions must be looked at: 70% by 2050, according to the United Nations Food and Agriculture Organization. And McKinsey estimates that the Solution 1: Change your diet market for connected agricultural products and services could A change toward a plant-based diet appears inevitable, in our add USD 500 billion to global GDP by 2030. view, if the global food system is to become more sustainable. Research suggests that a plant-based diet not only has around Solution 3: Don’t waste the taste a 90% lower emission intensity than the current average diet, Reducing the more than 30% of food that is either lost or but also offers the potential to reduce the number of prema- wasted would significantly aid the quest for a more sustainable ture deaths among adults by around 11 million. We see strong food system. Circular-based solutions that use food waste to growth potential for alternative animal-protein products and create new (food) products also help. Furthermore, smart estimate that the value of the market for alternative meat and packaging solutions are being developed that not only improve dairy can grow to USD 1.4 trillion by 2050. Even just reducing production yields but also help reduce food loss and waste meat consumption or changing from beef to chicken creates across the entire supply chain, from farm to home. Also, the a better ecological footprint. Despite the involvement of more development and introduction of cooling and storage solutions than 600 mainly small and private companies in producing would help extend the lifespan of food. (11/06/2021) plant-based food, we expect the traditional food companies to continue to transition their operations toward healthier products as well.

Investment Monthly | Japan edition / Credit Suisse Securities (Japan) Ltd., June 2021 10 Fixed income Remain cautious on global treasuries

Despite the ongoing consolidation in benchmark yields, we believe yield curves should steepen again, limiting the return potential of global treasuries. We continue to prefer emerging market hard currency (EM HC) corporate bonds, with a focus on Asian high yield (HY) bonds.

Luca Bindelli moderately rise, we think that spread levels for global IG and Head of Fixed Income and Currency and Commodity Strategy HY do not offer sufficient compensation for risk and have therefore a neutral return expectation for both credit cate- Over the last few weeks, US benchmark yields have remained gories. We continue to favor domestically oriented US range-bound, with higher US growth expectations likely al- telecommunication IG bonds, which we expect to benefit from ready priced in and market-based inflation expectations the US government’s infrastructure spending plan, while being peaking. The Federal Reserve (Fed) is so far successfully less affected by a potential corporate tax increase. Also, they stabilizing expectations at low levels in the front end. Despite offer a yield pick-up and duration diversification. In global HY, this, we still expect some renewed steepening of the US yield we also continue to believe that spreads are expensive and curve as the back end should move moderately higher with do not offer sufficient compensation for the risk of higher the ongoing recovery and the likely intensifying discussions benchmark yields. Our preference for EM HC credit remains. around the tapering of asset purchases. In line with the exten- In particular, we continue to expect a higher total return in sion in US yield consolidation, yields in Europe have also HY than IG given its shorter duration and hence lower sensi- stabilized of late. But with rates still negative, we prefer to tivity to rising benchmark yields. We particularly like Asian keep a short duration stance in Europe and Switzerland. HY, where investors can still earn an attractive spread pick- Overall, we still believe that global government bonds remain up over US HY. an unattractive investment and therefore keep exposure below benchmark allocations in portfolios. As gains in breakeven EM HC sovereign bonds to deliver cash-like returns inflation rates have consolidated of late, we continue to favor We maintain a more neutral outlook on EM HC sovereign US inflation-linked bonds over comparable nominal govern- bonds. Valuations still look tight, in particular of IG debt, and ment bonds, although we see relative gains as likely to slow. no longer offer enough of a cushion against an eventual resumption of the uptrend in global benchmark yields. Expected Prefer EM HC corporates returns have decreased alongside the recent spread tightening Similar to our last update, credit market performance has re- and we only expect cash-like returns over the next year. mained stable with spreads stable and benchmark bond yields Hence, we think the risk-reward for the asset class is not consolidating. From a valuation perspective, both investment attractive enough and maintain a benchmark allocation in our grade (IG) and HY global spreads remain close to historic portfolios. (11/06/2021) lows. Moreover, with benchmark yields still expected to

Investment Monthly | Japan edition / Credit Suisse Securities (Japan) Ltd., June 2021 11 Equities Equities stay at strategic allocation

Rising inflation and fears about tapering have replaced COVID-19 as the top concern among equity investors. We continue to expect attractive returns from global equities and maintain our intra- equity views.

Marc Häfliger off guard. For guidance, we therefore refer to the 2013 taper Global Equity Strategist tantrum when former Fed Chairman Ben Bernanke announced in a congressional testimony on 22 May 2013 that the Fed Fears of rising inflation and tapering (reduction of asset pur- would likely start slowing (“tapering”) the pace of its bond chases by central banks) have replaced COVID-19 as the purchases later in the year. This spooked markets and caused top concern among equity investors. One important reason real rates (Treasury Inflation-Protected Securities [TIPS] why COVID-19 is no longer seen as a major risk for equity yields) to rise, triggering a correction in equities. However, markets is the good progress made with vaccination efforts equity markets quickly recouped the losses and resumed their around the globe. Inflation has picked up driven by base ef- uptrend, although real rates remained higher. fects, the reopening of economies and the huge pent-up demand that is being released (in particular for services) as Still upside left in the rotation trade well as supply chain issues (e.g. chip shortages). Our analysis Looking ahead, we expect attractive returns from global equi- shows that equities tend to be well positioned to weather ties thanks to the earnings recovery, the economic reopening periods of reflation. Higher inflation should support our sector and benign financial conditions. As tactical indicators remain positioning, particularly financials and commodity-related elevated and some risks linger (e.g. add rising taxes to the sectors such as materials, which have historically delivered risk discussed above), we keep the equity allocation at solid returns amid rising inflation. Other markets we prefer, strategic weights in a portfolio context. We have made no including small caps, the UK, Russia and South Korea, should view change this time and stick to our existing intra-equity also benefit from a period of rising inflation and strong eco- preferences, as we still see further upside in the so-called nomic growth. rotation trade, even given the good run we have seen already. We expect benchmark yields to rise again after their consoli- Equity performance during the 2013 taper tantrum dation since the year-to-date peak at 1.74% on 31 March. The key question is whether the rise in inflation is transitory A rise in yields should support elements in the market with a or not. Although we continue to believe that the period of el- cyclical and/or value bias. In sectors, materials and financials evated inflation will prove temporary, we acknowledge the remain preferred, while Germany, the UK and Spain are fa- difficulty in predicting the near-term outlook. Should high in- vored on a regional level. In emerging markets, we expect flation indicators prompt central banks, first and foremost the Mexico, Russia, South Africa, South Korea and Thailand to US Federal Reserve (Fed), to indicate less patience to keep outperform. Last but not least, in styles we maintain our monetary conditions easy, markets could be caught rather preference for small caps across regions. (10/06/2021)

Investment Monthly | Japan edition / Credit Suisse Securities (Japan) Ltd., June 2021 12 Alternative investments Realizing gains on commodities

Commodities have continued to perform exceptionally strongly. The backdrop stays supportive but there are signs that peak tightness might be near, prompting us to realize gains tactically and change our return outlook from positive to neutral. Hedge funds have delivered a modestly positive performance, with long/short managers performing best once again. We expect listed real estate to underperform equities.

Jelena Kucenko conditions globally, but Chinese demand has been slowing Head of Alternative Investments for some time, which may herald a consolidation phase. We Stefan Graber agree with bullish long-term prospects, but a period of sur- Head of Commodity Strategy pluses may still be ahead first. Meanwhile, farmers have stepped up spring plantings, which – barring adverse summer Hedge funds: Long/short managers extend gains weather – should translate into more comfortable supply situ- Hedge funds posted modest gains in May and into June. ations in autumn. We also think that gold’s recent rebound Long/short managers performed best once again, benefitting is set to fade once the support from inflation surprises wanes from gains in broader markets and modestly lower inter-stock and central banks start to discuss withdrawing monetary correlations. Our Trading Conditions Barometer remains support. Oil looks more resilient to us thanks to continued firmly in favorable territory, but further advances are likely to supply management of OPEC+, and we still expect a strong moderate as improvements in liquidity and purchasing man- summer. The overall risk/reward has thus diminished and we agers’ indices have slowed. While we retain a favorable view realize gains into strength on this successful view. For in- on cyclical strategies such as opportunistic long/short equity, vestors who retain strategic allocations, we still favor fully di- we now also highlight strategies that are less sensitive to versified baskets, perhaps with some energy tilt and, where equity and credit beta such as merger arbitrage, credit arbi- possible, would extend maturities. trage, structured/agency credit and diversified macro. Real estate: Structural challenges persist Commodities: Exceptional performance Listed real estate gained in May and into June, outperforming The performance of commodities has remained very strong, equities. The sector benefitted from a recovery in cyclical as reaccelerating industrial production (ex-China) currently sectors due to the further rollout of vaccinations and the re- pressures supply chains, boosting spot prices. Technical opening of economies. But we believe that further upside analysis suggests that there may well be a risk of a further potential is limited. Rising benchmark yields are likely to hurt overshoot near-term. Yet, there are tentative signs of easing this yield-sensitive sector, while structural headwinds from e- logistical bottlenecks, while growth is set to turn less commod- commerce and working-from-home mute the earnings outlook ity-intensive in H2 2021 once services instead of manufactur- in the longer term. We favor UK real estate equities and keep ing drive activity, suggesting that peak tightness could be a cautious stance on the defensive Swiss real estate funds near. Base metals are currently well supported by strong amid continued economic recovery. (10/06/2021)

Investment Monthly | Japan edition / Credit Suisse Securities (Japan) Ltd., June 2021 13 Foreign exchange Turn neutral on GBP, but keep cyclical tilt

We take profit on our previously positive GBP view, but maintain a positive outlook for the CAD, NOK and NZD. Asian currencies remain our preferred expression for being long emerging market currencies (EM FX), particularly the CNY and KRW.

Luca Bindelli vaccination campaign and a more constructive central bank, Head of Fixed Income and Currency and Commodity Strategy we believe these catalysts will provide more limited support to the GBP going forward. Also, while the global reflationary The USD Index (DXY) has remained range-bound in recent context remains supportive, more idiosyncratic risks such as weeks. We continue to have a positive outlook on more cycli- EU trade tensions and political risks in relation to Scottish in- cal and commodity-related currencies such as the CAD, NOK dependence could resurface, limiting gains. and NZD. These currencies have lagged the recent surge in commodity export prices, as reflected in terms of trade, and CNY, KRW should still perform well should continue to benefit in the current reflationary environ- EM FX continued to deliver a strong performance over the ment. On top of their attractive cyclical characteristics, all last month, with commodity-exporting currencies outperform- three currencies offer specific attractive exposures. The ing. Overall, we maintain our attractive view on EM FX. The CAD’s oil dependency, rising exports due to sizable US de- global macro picture together with strong external balances mand and a hawkish monetary policy are particularly attractive in EM relative to the USA should keep the asset class well catalysts. The NOK also offers oil dependency, while adding supported. In addition, we are also seeing increasing evidence strong fundamentals and exposure to the reopening of Euro- that inflation in EM could be peaking in coming months. For pean economies. We still expect inflation risks to prove tem- now, EM central banks are likely to maintain their hawkish porary and allow the Federal Reserve (Fed) to conduct a bias to further stabilize inflation expectations. Taking into ac- cautious policy based on outcomes rather than forecasts. count that markets continue to price in an aggressive mone- This should prevent any significant policy rate re-pricing that tary policy response, peaking inflation could be beneficial for would support the USD. With US rates still above European EM growth. Within EM FX, we remain positive on the CNY and Japanese rates, however, we maintain a more neutral and the KRW largely on the back of the continued strength outlook on the USD against lower yielding currencies such in external accounts due to rising global demand, in particular as the EUR, CHF and JPY. for computer chips. We lower our 3M and 12M USD/CNY forecasts to 6.30 and 6.29, but leave our USD/KRW fore- Taking profit on GBP casts unchanged at 1090 and 1080. We interpret the recent After having seen the GBP appreciate nearly 5% since we comments of the People’s Bank of China about the surge in implemented our positive view against the USD late last year, the CNY as concern about the pace of the appreciation rather we think it is time to neutralize the view. While the GBP has than the currency level itself. (11/06/2021) benefitted from relief in terms of Brexit risks, a successful

Investment Monthly | Japan edition / Credit Suisse Securities (Japan) Ltd., June 2021 14 Forecasts At a glance

More information on the forecasts and estimates is available Credit: Selected indices on request. Past performance is not an indicator of future Yield Spread Duration 3M TR 12M TR fore- performance. Performance can be affected by commissions, (%) (bp) (years) forecast* cast* fees or other charges as well as exchange rate fluctuations. BC Global Aggregate 1.08 32 7.44 -0.10% -0.10% BC Global Treasuries 0.73 10 8.53 -0.30% -0.50% BC Global IG Corp 1.56 87 7.34 0.11% 0.44% Central bank rate/10-year government bonds BC Global HY Corp 4.20 349 4.24 0.20% 0.79% CB rate 10Y JPM EMBI Global Di- 4.87 333 7.52 0.03% 0.10% yield versified HC in % Spot 3M 12M Spot 3M 12M CHF -0.75 -0.75 -0.75 -0.21 -0.15 -0.05 BC = Barclays Capital, IG= Investment Grade, JPM = JP Morgan (EMBI+). Index data as of 15/6/2021. *Forecast as on 15/6/2021 EUR -0.50 -0.50 -0.50 -0.23 -0.10 0.00 These forecasts are no reliable indicators of future performance. Source: Bloomberg, USD 0.13 0.00-0.25 0.00-0.25 1.50 1.70 2.00 Credit Suisse GBP 0.10 0.10 0.10 0.76 0.80 0.90 AUD 0.10 0.10 0.10 1.54 1.70 1.80 JPY -0.10 -0.10 -0.10 0.06 0.10 0.10 Foreign exchange Spot 3M 12M Spot rates are closing prices as of 15/6/2021. Forecast date 10/6/2021. These EUR/USD 1.21 1.22 1.24 forecasts are no reliable indicators of future performance. Source: Bloomberg, Credit Suisse/IDC USD/CHF 0.90 0.90 0.90 EUR/CHF 1.09 1.10 1.12 USD/JPY 110.07 109.00 107.00 Equities EUR/GBP 0.86 0.85 0.87 Index Spot P/E Div. y. 3M* 12M* GBP/USD 1.41 1.43 1.43 (%) AUD/USD 0.77 0.79 0.80 MSCI AC World** 1,782 18.9 2.1 1,800 1,900 USD/CAD 1.21 1.15 1.15 US S&P 500 4,247 24.6 2.0 4,270 4,450 EUR/SEK 10.10 10.10 10.20 Eurostoxx 50 4,144 20.4 2.4 4,145 4,310 EUR/NOK 10.09 9.70 9.60 UK FTSE 100 7,172 14.8 4.1 7,180 7,480 EUR/PLN 4.53 4.39 4.53 Japan Topix 1,975 18.4 2.1 1,985 2,065 USD/CNY 6.40 6.30 6.29 Australia S&P/ASX 7,379 22.1 3.6 7,360 7,610 USD/SGD 1.33 1.31 1.29 200 USD/KRW 1118.03 1090.00 1080.00 Switzerland SMI 11,922 20.6 2.6 11,930 12,370 USD/INR 73.27 74.00 73.50 MSCI Emerging Mar- 182,903 14.1 2.3 185,300 195,500 USD/BRL 5.05 5.00 5.20 kets** USD/MXN 19.95 19.60 20.00

Prices as of 15/6/2021 . *Forecast as on 10/6/2021 . **Gross return (incl. dividends). Spot rates are as of 16/6/2021 These forecasts are no reliable indicators of future performance. Source: Bloomberg, Forecast date: 12/5/2021. These forecasts are no reliable indicators of future perfor- Datastream, Credit Suisse/IDC mance. Source: Bloomberg, Credit Suisse/IDC

Commodities Real GDP growth and inflation Spot 3M* 12M* GDP Inflation Gold (USD/oz) 1860 1850 1750 growth Silver (USD/oz) 27.7 28 26 in % 2020 2021 2022 2020 2021 2022 Platinum (USD/oz) 1153.6 1250 1250 CH -2.9 3.5 2.0 -0.7 0.3 0.4 Palladium (USD/oz) 2759 2900 2800 EMU -6.8 4.2 4.1 0.3 1.8 1.4 Copper (USD/ton) 9552 10000 9500 USA -3.5 6.9 3.0 1.2 3.6 2.1 WTI Crude Oil (USD/bbl) 72.7 72 64 UK -9.8 6.5 6.0 0.9 1.7 1.9 Bloomberg Commodity index 199.9 204 195 Australia -2.4 5.3 3.2 0.9 1.9 1.7 Japan -4.7 1.9 1.7 -0.2 0.2 0.3 Spot rates are as of 16/6/2021 *forecast as on 10/6/2021 China 2.3 8.2 6.1 2.5 1.7 2.7 These forecasts are no reliable indicators of future performance. Source: Bloomberg, Credit Suisse/IDC Last forecast update: 09/06/2021 These forecasts are no reliable indicators of future performance. Source: Bloomberg, Credit Suisse (16/06/2021)

Investment Monthly | Japan edition / Credit Suisse Securities (Japan) Ltd., June 2021 15 Glossary

Risk warnings Emerging markets Emerging markets are located in countries that possess one or more of the following characteristics: a certain degree of political instability, relatively unpredictable financial markets and economic growth patterns, a financial market that is still at the development stage or a weak economy. Emerging market investments usually result in higher risks as a result of political, economic, credit, exchange rate, market liquidity, legal, settlement, market, shareholder and creditor risks. Hedge funds Regardless of structure, hedge funds are not limited to any particular investment discipline or trading strategy, and seek to profit in all kinds of markets by using leverage, derivative instruments and speculative investment strategies that may increase the risk of investment loss. Commodity investments Commodity transactions carry a high degree of risk and may not be suitable for many private investors. The extent of loss due to market movements can be substantial or even result in a total loss. Real estate Investors in real estate are exposed to liquidity, foreign currency and other risks, including cyclical risk, rental and local market risk as well as environmental risk, and changes to the legal situation. Currency risks Investments in foreign currencies involve the additional risk that the foreign currency might lose value against the investor’s reference currency. Equity risk Equities are subject to market forces and hence fluctuations in value, which are not en- tirely predictable. Market risk Financial markets rise and fall based on economic conditions, inflationary pressures, world news and business-specific reports. While trends may be detected over time, it can be difficult to predict the direction of the market and individual stocks. This variability puts stock investments at risk of losing value. High Yield bond risk High Yield Bonds are typically rated below investment grade or are unrated and as such are often subject to a higher risk of issuer default. Perpetual Bondrisk Perpetual Bonds have no maturity date and therefore the Interest pay-out depends on the viability of the issuer in the very long term. Subordinated Bondrisk In case of liquidation of the issuer, investors can only get back the principal after other senior creditors are paid. Risk ofBonds with variable/ deferral Investors would face uncertainty over the amount and time of the interest payments to of interest terms be received. Callable bondrisk Investors face reinvestment risk when the issuer exercises its right to redeem the bond before it matures. Risk ofBonds with extendable maturi- Investors would not have a definite schedule of principal repayment. ty date Convertible or exchangeable bondrisk Investors are subject to both equity and bond investment risk. Cocosrisk The bond may be written-off fully or partially or converted to common stock on the occur- rence of a trigger event.

Explanation of indices frequently used in reports

Index Comment Australia S&P/ASX 200 S&P/ASX 200 is an Australian market-capitalization-weighted and float-adjusted stock index calculated by Standard and Poor's.

Investment Monthly | Japan edition / Credit Suisse Securities (Japan) Ltd., June 2021 16 BC High Yield Corp USD The US Corporate High Yield Index measures USD-denominated, non-investment grade, fixed-rate and taxable corporate bonds. The index is calculated by Barclays. BC High Yield Pan EUR The Euro Corporate Index tracks the fixed-rate, investment-grade, euro-denominated corporate bond market. The index includes issues that meet specified maturity, liquidity and quality requirements. The index is calculated by Barclays. BC IG Corporate EUR The US Corporate Index tracks the fixed-rate, investment-grade, euro-denominated corporate bond market. The index includes both US and non-US issues that meet specified maturity, liquidity and quality requirements. The index is calculated by Barclays. BC IG Corporate USD The IG Corporate Index tracks the fixed-rate, investment-grade, dollar-denominated corporate bond market. The index includes both US and non-US issues that meet specified maturity, liquidity and quality requirements. The index is calculated by Barclays. Canada S&P/TSX comp The S&P/TSX composite index is the Canadian equivalent of the S&P 500 Index in the USA. The index contains the largest stocks traded on the Toronto Stock Exchange. Consumer Confidence Indices Consumer Confidence Indices (CCIs) are based on surveys of consumers' spending intentions and economic situations, as well as their concerns and expectations for the immediate future. CS Hedge Fund Index The Credit Suisse Hedge Fund Index is compiled by Credit Suisse Hedge Index LLC. It is an asset-weighted hedge fund index and includes only funds, as opposed to separate accounts. The index reflects performance net of all hedge fund component performance fees and expenses. CS LSI ex govt CHF The Liquid Swiss Index ex govt CHF is a market-capitalized bond index representing the most liquid and tradable portion of the Swiss bond market excluding Swiss government bonds. The index is calculated by Credit Suisse. DAX The German Stock Index stock represents 30 of the largest and most liquid German companies that trade on the Frankfurt Exchange. DXY A measure of the value of the US dollar relative to the majority of its most important trading partners. The US Dollar Index is similar to other trade-weighted indices, which also use the exchange rates from the same major currencies. Eurostoxx 50 Eurostoxx 50 is a market-capitalization-weighted stock index of 50 leading blue-chip companies in the Eurozone. FTSE EPRA/NAREIT Global Real Estate Index Series The FTSE EPRA/NAREIT Global Real Estate Index Series is designed to represent general trends in eligible real estate equities worldwide. Hedge Fund Barometer The Hedge Fund Barometer is a proprietary Credit Suisse scoring tool that measures market conditions for hedge fund strategies. It comprises four components: liquidity, volatility; systemic risks and business cycle. Japan Topix TOPIX, also known as the Tokyo Stock Price Index, tracks all large Japanese companies listed in the stock exchange's "first section." The index calculation excludes temporary issues and preferred stocks. JPM EM hard curr. USD The Emerging Market Bond Index Plus tracks the total return of hard-currency sovereign bonds across the most liquid emerging markets. The index encompasses US-denominated Brady bonds (dollar-denominated bonds issued by Latin American countries), loans and Eurobonds. JPM EM local curr. hedg. USD The JPMorgan Government Bond Index tracks local currency bonds issued by emerging market governments across the most accessible markets for international investors. MSCI AC Asia/Pacific The MSCI All Country Asia Pacific Index captures large and mid cap representation across 5 developed market countries and 8 emerging markets countries in the Asia Pacific region. With 1,000 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. MSCI AC World The MSCI All Country World Index captures large and mid cap representation across 23 developed markets and 23 emerging market countries. With roughly 2480 constituents, the index covers around 85% of the global investable equity opportunity set. MSCI Emerging Markets MSCI Emerging Markets is a free-float-weighted Index designed to measure equity market performance in global emerging markets. The index is developed and calculated by Morgan Stanley Capital International. MSCI EMU The MSCI EMU Index (European Economic and Monetary Union) captures large and mid cap representation across the 10 Developed Markets countries in the EMU. With 237 constituents, the index covers approximately 85% of the free float-adjusted market capitalization of the EMU. MSCI Europe The MSCI Europe Index captures large and mid cap representation across 15 developed markets countries in Europe. With 442 constituents, the index covers approximately 85% of the free float-adjusted market capitalization across the European developed markets equity universe. MSCI UK The MSCI United Kingdom Index is designed to measure the performance of the large and mid cap segments of the UK market. With 111 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in the UK. MSCI World MSCI World is an index of global equity markets developed and calculated by Morgan Stanley Capital International. Calculations are based on closing prices with dividends reinvested. OECD Composite Leading Indicators OECD Composite Leading Indicators (CLIs) are designed to provide early signals of turning points in business cycles with components that measure early stages of production, respond to changes in economic activity, and are sensitive to expectations of future activity. Purchasing Managers' Indices Purchasing Managers' Indices (PMIs) are economic indicators derived from monthly surveys of private-sector companies. The two principal producers of PMIs are Markit Group, which conducts PMIs for over 30 countries worldwide, and the Institute for Supply Management (ISM), which conducts PMIs for the United States. The indices include additional sub-indices for manufacturing surveys such as new orders, employment, exports, stocks of raw materials and finished goods, prices of inputs and finished goods, and services. Russell 1000 Growth Index The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe based on 1000 large-cap companies with higher price-to-book ratios and higher forecast growth values. Russell 1000 Index The Russell 1000 Index is a stock market index that represents the highest-ranking 1,000 stocks in the Russell 3000 Index (encompassing the 3,000 largest US-traded stocks, with the underlying companies all incorporated in the USA), and representing about 90% of the total market capitalization of that index. The Russell 1000 Index has a weighted average market capitalization of USD 81 billion and the median market capitalization is approximately USD 4.6 billion. Russell 1000 Value Index The Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe based on 1000 large-cap companies with lower price-to-book ratios and lower expected growth values. Switzerland SMI The Swiss Market Index is made up of 20 of the largest companies listed of the Swiss Performance Index universe. It represents 85% of the free-float capitalization of the Swiss equity market. As a price index, the SMI is not adjusted for dividends. UK FTSE 100 FTSE 100 is a market-capitalization-weighted stock index that represents 100 of the most highly capitalized companies traded on the London Stock exchange. The equities have an investibility weighting in the index calculation. US S&P 500 Standard and Poor's 500 is a capitalization-weighted stock index representing all major industries in the USA, which measures the performance of the domestic economy through changes in the aggregate market value.

Investment Monthly | Japan edition / Credit Suisse Securities (Japan) Ltd., June 2021 17 Abbreviations frequently used in reports

Abb. Description Abb. Description 3/6/12 MMA 3/6/12 month moving average IMF International Monetary Fund AI Alternative investments LatAm Latin America APAC Asia Pacific Libor London interbank offered rate bbl barrel m b/d Million barrels per day BI Bank Indonesia M1 A measure of the money supply that includes all physical money, such as coins and currency, as well as demand deposits, checking accounts and negotiable order of withdrawal accounts. BoC Bank of Canada M2 A measure of money supply that includes cash and checking deposits (M1) as well as savings deposits, money market mutual funds and other time deposits. BoE Bank of England M3 A measure of money supply that includes M2 as well as large time deposits, institutional money market funds, short-term repurchase agreements and other larger liquid assets. BoJ Bank of Japan M&A Mergers and acquisitions bp Basis points MAS Monetary Authority of Singapore BRIC Brazil, Russia, China, India MLP Master Limited Partnership CAGR Compound annual growth rate MoM Month-on-month CBOE Chicago Board Options Exchange MPC Monetary Policy Committee CFO Cash from operations OAS Option-adjusted spread CFROI Cash flow return on investment OECD Organisation for Economic Co-operation and Development DCF Discounted cash flow OIS Overnight indexed swap DM Developed Market OPEC Organization of Petroleum Exporting Countries DMs Developed Markets P/B Price-to-book value EBITDA Earnings before interest, taxes, depreciation and amortization P/E Price-earnings ratio ECB European Central Bank PBoC People's Bank of China EEMEA Eastern Europe, Middle East and Africa PEG P/E ratio divided by growth in EPS EM Emerging Market PMI Purchasing Managers' Index EMEA Europe, Middle East and Africa PPP Purchasing power parity EMs Emerging Markets QE Quantitative easing EMU European Monetary Union QoQ Quarter-on-quarter EPS Earnings per share r.h.s. right-hand side (for charts) ETF Exchange traded funds RBA Reserve Bank of Australia EV Enterprise value RBI Reserve Bank of India FCF Free cash flow RBNZ Reserve Bank of New Zealand Fed US Federal Reserve REIT Real estate investment trust FFO Funds from operations ROE Return on equity FOMC Federal Open Market Committee ROIC Return on invested capital FX Foreign exchange RRR Reserve requirement ratio G10 Group of Ten SAA Strategic asset allocation G3 Group of Three SDR Special drawing rights GDP Gross domestic product SNB Swiss National Bank GPIF Government Pension Investment Fund TAA Tactical asset allocation HC Hard currency TWI Trade-Weighted Index HY High yield VIX Volatility Index IBD Interest-bearing debt WTI West Texas Intermediate IC Credit Suisse Investment Committee YoY Year-on-year IG Investment grade YTD Year-to-date ILB Inflation-linked bond Personal Consumption An indicator of the average increase in prices for all domestic Expenditure (PCE defla- personal consumption. tor)

Currency codes frequently used in reports

Code Currency Code Currency ARS Argentine peso KRW South Korean won AUD Australian dollar MXN Mexican peso BRL Brazilian real MYR Malaysian ringgit CAD Canadian dollar NOK Norwegian krone CHF Swiss franc NZD New Zealand dollar CLP Chilean peso PEN Peruvian nuevo sol CNY Chinese yuan PHP Philippine peso COP Colombian peso PLN Polish złoty CZK Czech koruna RUB Russian ruble EUR Euro SEK Swedish krona/kronor GBP Pound sterling SGD Singapore dollar HKD Hong Kong dollar THB Thai baht

Investment Monthly | Japan edition / Credit Suisse Securities (Japan) Ltd., June 2021 18 HUF Hungarian forint TRY Turkish lira IDR Indonesian rupiah TWD New Taiwan dollar ILS Israeli new shekel USD United States dollar INR Indian rupee ZAR South African rand JPY Japanese yen

Important information on derivatives

Pricing Option premiums and prices mentioned are indicative only. Option premiums and prices can be subject to very rapid changes: The prices and premiums mentioned are as of the time indicated in the text and might have changed substantially in the meantime. Risks Derivatives are complex instruments and are intended for sale only to investors who are capable of understanding and assuming all the risks involved. Investors must be aware that adding option positions to an existing portfolio may change the characteristics and behavior of that portfolio substantially. A portfolio’s sensitivity to certain market moves can be heavily impacted by the leverage effect of options. Buying calls Investors who buy call options risk the loss of the entire premium paid if the underlying security trades below the strike price at expiration. Buying puts Investors who buy put options risk loss of the entire premium paid if the underlying security finishes above the strike price at expiration. Selling calls Investors who sell calls commit themselves to sell the underlying for the strike price, even if the market price of the underlying is substantially higher. Investors who sell covered calls (own the underlying security and sell a call) risk limiting their upside to the strike price plus the upfront premium received and may have their security called away if the security price exceeds the strike price of the short call. Additionally, the investor has full downside participation that is only partially offset by the premium received upfront. If investors are forced to sell the underlying they might be subject to taxing. Investors shorting naked calls (i.e. selling calls but without holding the underlying security) risk unlimited losses of security price less strike price. Selling puts Put sellers commit to buying the underlying security at the strike price in the event the security falls below the strike price. The maximum loss is the full strike price less the premium received for selling the put. Buying call spreads Investors who buy call spreads (buy a call and sell a call with a higher strike) risk the loss of the entire premium paid if the underlying trades below the lower strike price at expiration. The maximum gain from buying call spreads is the difference between the strike prices, less the upfront premium paid. Selling naked call spreads Selling naked call spreads (sell a call and buy a farther out-of-the-money call with no underlying security position): Investors risk a maximum loss of the difference between the long call strike and the short call strike, less the upfront premium taken in, if the underlying security finishes above the long call strike at expiration. The maximum gain is the upfront premium taken in, if the security finishes below the short call strike at expiration. Buying put spreads Investors who buy put spreads (buy a put and sell a put with a lower strike price) also have a maximum loss of the upfront premium paid. The maximum gain from buying put spreads is the difference between the strike prices, less the upfront premium paid. Buying strangles Buying strangles (buy put and buy call): The maximum loss is the entire premium paid for both options, if the underlying trades between the put strike and the call strike at expiration. Selling strangles or straddles Investors who are long a security and short a strangle or straddle risk capping their upside in the security to the strike price of the call that is sold plus the upfront premium received. Additionally, if the security trades below the strike price of the short put, investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short put and will also experience losses in the security position if they owns shares. The maximum potential loss is the full value of the strike price (less the value of the premium received) plus losses on the long security position. Investors who are short naked strangles or straddles have unlimited potential loss since, if the security trades above the call strike price, investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short call. In addition, they are obligated to buy the security at the put strike price (less upfront premium received) if the security finishes below the put strike price at expiration.

Investment Monthly | Japan edition / Credit Suisse Securities (Japan) Ltd., June 2021 19 Important information on mutual funds Risk pertaining to liquidity: Fees and charges, etc. Where there is sudden high volume in a particular investment or when sudden Different types of fees and commissions (subscription fee, amount which changes in the external environment surrounding markets triggers a sudden must be retained in trust assets, repurchase fee, etc.) are charged when downturn in a market or period of market turmoil, etc., investments may not investment trusts/funds are purchased and sold. In addition, apart from these be flexibly traded. In such a case, a decline in the price of the investment fees and commissions, trust and management fees and other fees (audit may impact the base value (or net asset value) of the investment trust, result- fee, trust administrative charges, carried interest, etc.) are charged and borne ing in a loss. Further, the management company may decide to stop calcu- by you through your trust asset. Fees and commissions borne by you will be lation of net asset prices or suspend sell or redemption claims. a sum of these amounts. Such fees and commissions vary depending on the investment trust/fund and depending on the investment status, and In addition, for certain types of investment trust/fund there is a risk that therefore, we cannot provide specific amounts or calculation methods. particular investments may be designated to a separate account (or side pocket) due to a lack of liquidity. When a separate account is utilized by in- For detailed information on fees and commissions, etc. of each re- vestment trusts/funds restrictions may apply as to when such investments spective investment trust/fund, please refer to the pre-contract can be liquidated through a sell or redemption claim and there may be a re- documents (prospectus and other supplementary documents). striction in the timing or form of redemption claim permissible. In particular, for Fund of Fund investments, when an investment trust/fund makes an investment without time limit in another fund, the investment trust/fund may Important information on dividends: be influenced by investment results in the other funds. • Dividends are different to interest on deposits and are paid from the net asset value of investment trusts/funds. Therefore, when dividends are paid, Risk associated with an outflow of money received from the base value (net asset value per unit) will decrease by an amount equivalent to the amount paid. sales orders: When there is a large volume of sale orders in a short period of time, the investment trust/fund may be forced to sell structured securities at a lower • Dividends may be paid exceeding the profit earned during the calculation rate than the prevailing market price to refund monies to investors and as a period (trading profit including profits of dividends, etc. after expenses). In result you may suffer a loss. Also, alternative investment trusts/funds gen- this case, the base value (net asset value per unit) on the settlement date erally have a limitation in selling or cashing out the investment compared to in this period will decrease compared to that on the settlement date in the traditional investment trusts/funds. Many alternative investment trusts/funds previous period. Also, the level of dividends does not always reflect the rate only accept a sell or redemption order on a monthly or quarterly basis and of return for the investment trust/fund during the calculation period. therefore you may not be able to rapidly exit the investment in, for example, times of economic uncertainty. • A part or all of dividends may be virtually equivalent to some repayment of the principal depending on the purchase price of the investment trust/fund Redemption risk: by an investor. The same can be applied to a case that an increase in the base value (net asset value per unit) is smaller than a dividend amount due Investment trusts/funds may become subject to mandatory redemption due to the investment status after purchase of the investment trust/fund. to a certain reason. For details, please refer to the pre-trade documents (prospectus and other supplementary documents) before subscription.

Please refer to the prospectus for details. Concentration risk: Investment trusts/funds which invest in a certain investment product or Explanation of major risks (description pursuant to Ar- similar investment product group may significantly decrease in value (net ticle 37 (Regulation on Advertising, etc.) of the Financial asset value) under severe market circumstances. Instruments and Exchange Act, etc.) The risks described below are a summary of some general risks of investment Country risk: trusts/funds (risks which have an impact on net asset value) and do not When changes in political, economic and social conditions in investment cover all risks. Please refer to the pre-trade documents (prospectus and destination countries and regions cause a dislocation in financial and security other supplementary documents). markets, security prices may significantly change. Also, investments in emerging markets involve unique risks including small market size and trade Price volatility risk: volume, political and social uncertainties, undeveloped market infrastructure such as a clearing system, undeveloped information disclosure system and Investment trusts/funds invest mainly in equities, bonds and derivative legal system by supervising authorities, large fluctuations in exchange rates, products, etc. The value of the investment trust/fund will go up or down due restrictions on currency remittance to foreign countries and other factors, to increases or decreases in the prices of such investments. Further, the and, therefore, may have larger price fluctuations compared to investments value of such investments will be impacted by political and economic factors, in major developed markets. the financial standing of an issuer, market demand and supply, interest rates and other factors. Important information on non-Japanese stocks Foreign currency risk: Please refer to the issuer information when you purchase non-Japanese stocks. Investment trusts/funds which invest in equities or bonds, etc. denominated in foreign currencies entail a foreign currency risk, and the base value (or net asset value) of investment trusts/funds may change depending on the Disclaimer currency exchange rate. Even when you do not experience a loss of invest- This material is published solely for information purposes and is intended for ment principal when calculated in the base currency, you may suffer a loss the recipient’s sole use. Credit Suisse does not represent or warrant its ac- at conversion into Japanese yen due to fluctuations in exchange rates. Fur- curacy or completeness. The material is not directly or indirectly intended for thermore, investment trusts/funds which utilize currency trading among any investment solicitation, and does not constitute an invitation or offer to multiple currencies may incur costs due to such currency trading depending conclude a transaction contract for financial instruments, etc. Credit Suisse on the difference in short-term interest rates between the currencies, and accepts no liability for loss arising from the use of the information in this you may suffer a loss. material. It is recommended that you consult with the third party professional advisors as to legal or tax issues, etc. This material should not be reproduced Credit risk: or quoted without the prior express written consent of Credit Suisse. The information and opinions expressed in this material were produced by Private For investment trusts/funds which invest in equities or bonds, etc., the prices Banking Division at Credit Suisse as of the date of writing and are subject of these investments may increase and decrease due to changes in the to change without notice. Views expressed in respect of particular investment business or financial standing of the issuer and other factors, and you may products in this material may be different from, or inconsistent with, the ob- suffer a loss.

Investment Monthly | Japan edition / Credit Suisse Securities (Japan) Ltd., June 2021 20 servations and views of other divisions besides Private Banking due to the ducted on a principal to principal basis, including over the counter derivatives differences in evaluation criteria. This material is solely distributed in Japan transactions, will be quoted as a purchase/bid price or sell/offer price and by Credit Suisse Securities (Japan) Limited. Credit Suisse Securities (Japan) for which a difference or spread may exist. Charges in relation to transactions Limited will not distribute or forward it outside Japan. will be agreed prior to dealing as per our requirements under the Financial Instruments and Exchange Law. You may incur a loss as a result of fluctuations in stock prices if you invest in stocks. In relation to foreign stocks, you may incur a loss in such stocks By purchasing financial instruments, etc., you may incur a loss or a due to foreign exchange rate fluctuations, etc. The market value of bonds loss in excess of the principal as a result of fluctuations in market is affected by interest rate fluctuations or changes in the financial standing prices or other financial indices, etc. Please read carefully the Pre- of any issuer, etc. as such you may incur a loss if you sell such bonds before Contract Documentation provided for an explanation of associated they are redeemed. In relation to foreign bonds, you may incur a loss in such risks and commissions etc. of individual financial instruments, etc. bonds due to foreign exchange rate fluctuations, etc. The net asset value prior to purchase. Please contact your Relationship Manager if you of mutual funds can fall as well as rise due to price changes of underlying have any questions. stocks, bonds, etc. and foreign exchange rate fluctuations, and this may cause you to incur a loss. UNITED STATES: NEITHER THIS REPORT NOR ANY COPY THEREOF MAY BE SENT, TAKEN INTO OR DISTRIBUTED IN THE UNITED STATES Structured securities and derivatives are complex instruments, typically involve OR TO ANY US PERSON (WITHIN THE MEANING OF REGULATION S a high degree of risk and are intended for sale only to sophisticated investors UNDER THE US SECURITIES ACT OF 1933, AS AMENDED). who are capable of understanding and assuming the risks involved. The market value of any structured security or transaction may be affected by changes in financial market conditions, reference indices, volatility and the Credit Suisse Securities (Japan) Limited, Financial Instruments Dealer, Di- credit quality of any issuer or reference issuer. rector-General of Kanto Local Finance Bureau (Kinsho) No. 66, a member of Japan Securities Dealers Association, Financial Futures Association of Japan, Japan Investment Advisers Association, Type II Financial Instruments Furthermore, there are structured securities on which you may incur a loss Firms Association. since the redemption amounts are linked with fluctuations in reference indices, etc. There are also derivatives on which potential losses may exceed the amount of the initial investment. Commission rates for any transactions will Copyright © 2021 Credit Suisse Group AG and/or its affiliates. All rights be as per the rates agreed between Credit Suisse and you. For transactions reserved. conducted on a principal to principal basis between Credit Suisse and you, the purchase or sale price will be the total consideration. Transactions con- 21C013A_IS_J

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