DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON-US ANALYSTS. FOR OTHER IMPORTANT DISCLOSURES, visit www.credit-suisse.com/ researchdisclosures or call +1 (877) 291-2683. U.S. Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. 26 April 2010GlobalEquity ResearchMacro (Strategy)Global Equity Strategy STRATEGY RMB revaluation One of the most widely expected events this year is a RMB revaluation. We believe that there will be slightly more RMB/Asian currencies revaluation than is discounted by the markets. Our head of Asia economics, Dong Tao, expects a 3–5% revaluation this year (starting mid-year) and 5% in 2011E (more than the forward curve, which is discounting 3.2% appreciation over the next 12 months). Moreover, our FX team’s model estimates that the RMB is 49% undervalued, with the Won and NT$ being 30% and 31% undervalued (in our opinion the RMB is overvalued until the current account is in deficit by 3% of GDP; currently there is a 5.5% surplus). We think RMB appreciation makes sense as it would likely: a) avoid punitive import tariffs (e.g., the Schumer/Graham bill); and b) control overheating (we estimate each 10% on the RMB takes 0.9% off inflation and 1.2% off GDP). In July 2005, the RMB initially revalued 2.1%, but then appreciated 19% against the dollar over the next three years. A quick sharp revaluation in the RMB (10%+) is both unlikely and counterproductive—we see optimal revaluation as moderate and slow (which is likely). The winners. The last time the RMB revalued (in July 2005), Japan outperformed 25% in the subsequent six months (and we think it could outperform again with 55% of exports going to NJA: we like Nitto Denko, TDK, Asahi Glass) and Non-Japan Asia outperformed marginally. We believe that a small currency appreciation could lead to unsterilised capital inflows and thus an asset bubble (in China, according to Dong Tao, only about 40% of capital inflows are sterilised). Hong Kong retail property owners could benefit (as HIBOR is driven down and Chinese consumers go to Hong Kong to shop): Great Eagle trades on a 39% discount to NAV. From a sector point of view, after the last RMB revaluation the clear winner was metals/mining, outperforming by 31% over the following six months (and Chinese property stocks, which outperformed by nearly 60%). We see the big long-term winners as the China/Non-Japan Asia consumer plays. The NJA consumer share of GDP is just 45% and 35% in China (compared with 71% in the US) and currency appreciation is about redirecting exports/investment to consumption. Stocks that look cheap on Credit Suisse HOLT® and have more than 10% of sales to NJA include: Millennium & Copthorne, SAB Miller, WPP, HSBC, Cisco, Pepsi, Motorola, Belle and China Mobile. We believe tech is a winner, with China accounting for nearly a fifth of PC & handset demand, the PC penetration rate being just 15% and PCs being particularly price sensitive. Some companies that compete against Chinese manufacturers would likely benefit from a boost to their competitive position (Verso, PKG, Ericsson, Siemens, ArcelorMittal, CAT, Cummins). Companies sourcing from China are likely to suffer: e.g., retailing, with half of textile costs from China. We stick to an overweight of NJA: the implied growth premium (13%) is much less than the GDP growth premium (108%); NJA can outperform even if lead indicators roll-over prior to the first Fed rate hike; a negative real Fed Funds rate is typically supportive; finally, regional risk appetite is back to just neutral levels (relative to global markets). Research Analysts Andrew Garthwaite 44 20 7883 6477 andrew.garthwaite@credit-suisse.com Luca Paolini 44 20 7883 6480 luca.paolini@credit-suisse.com Marina Pronina 44 20 7883 6476 marina.pronina@credit-suisse.com Mark Richards 44 20 7883 6484 mark.richards@credit-suisse.com Sebastian Raedler 44 20 7888 7554 sebastian.raedler@credit-suisse.com 26 April 2010 Global Equity Strategy 2 Table of contents RMB revaluation 3 What are the potential costs/benefits from China’s point of view? 4 How undervalued are RMB and Asian currencies? 6 An asset bubble in the making 7 What happened when the RMB revalued in July 2005? 9 Who are the likely winners? 11 Who are the likely losers? 16 Stay overweight of Non-Japan Asia 17 We do not think this will lead to a sell-