e e UK equities Preference: overweight FTSE 100 (27 June): 5,524 (last month: 5,266) |. Recommendations UBS View FTSE 100 (6-month target): 5,785 = Tactical (6 months) ¢ We continue to like UK equities relative to global ones. An expected improvement in the global economy e¢ We like the Energy sector due to over the coming quarters should support UK companies as 70% of revenues are generated abroad. attractive valuations; Consumer Staples e Energy is the largest sector of the UK market. While the oil price eased sharply over the past months, we is another preferred sector Because of expect it to stabilize in the second half of 2012. An attractive valuation of the energy sector at 6.5x trailing its defensive qualities. earnings provides some buffer for earnings volatility going forward. e Approaching the end of the patent cliff ¢ Profitability of UK banks is reasonable. They are less affected by the sovereign debt crisis than their should remove some uncertainty on the Eurozone peers. While the recent easing of collateral requirements by the Bank of England is supportive in Healthcare sector and enable a re- the short-term, the profitability of the domestic operations could be negatively affected by the rating. implementation of the ring-fencing bank reform by 2015. P P _, g g a y ; ; . Strategic (1 to 2 years) ¢ UK equities’ P/E, at about 10.0x trailing, indicates giiacive value relative to global equities. Based on our . As commodity-related sectors, Energy 12-month forward earnings growth estimate of about 5% and the P/E multiple slightly expanding to 10.3x, snd Materials should benefit from we expect UK equities to show good returns over the next six months. robust demand in emerging markets. A Positive scenario FTSE 100 (6-month target): 6,650 ° "he an market’ 4% “wvicene yield rovides a good income stream. ¢ Continued global growth and strong demand from emerging markets should support demand for P g commodities, helping the Materials and Energy sectors to lead