e e e Swiss equities Preference: underweight | SMI (27 June): 5,997 (last month: 5,818) "ecommendations UBS View SMI (6-month target): 6,200 Tactical (6 months) ° Swiss listed companies generate a high share of profits in economies outside Switzerland. Consequently, ° We favor companies with a strong and the Swiss equity market is affected by the recent weakening in global growth. broad foothold in emerging markets, as ¢ Swiss companies try to mitigate concerns on the global economic prospects by maintaining tight cost well as innovative companies able to controls. This should allow to maintain relatively robust operating margins in 2012. market their products and services ¢ While the Swiss franc remains overvalued, we expect the currency impact to gradually become less of a efficiently and globally. drag. In fact, at current exchange rates, Swiss companies' earnings would show some positive currency e We continue to favor large caps. translation effects by end 2012, compared to the previous year. a Strategic (1 to 2 years) e Still, the PE-ratio of the market is relatively high compared to the global average, indicating less © We lik , : ; ; e like stocks paying high and attractive value. The SMI is trading at about 12.8x realized earnings. We are thus more cautious on the sustaitrable dividends ay of the market to si at node is ani se ina challenging market environment. As a ° Moreover, we favor leaders in regards result, we maintain a small underweight stance on Swiss equities. to the two key Swiss success factors: A Positive scenario SMI (6-month target): 6,900 innovation and globalization. e Eurozone economic growth reaccelerates meaningfully, providing relief to Swiss financials as well as Swiss exporters. Defensive sectors would likely be left behind in a relief rally. In this scenario, we would ‘ , expect the equity market P/E to re-rate to 14x and earnings to grow by 5% over the next six months Swiss market trades at a P/E-premium fe . y ; , (based on realiz