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UBS House ViewInvestor’s GuideJuly 2017

GlobalChief Investment Office WM

The paradox ofhistorical knowledge

04 Tactical preferences

06 Monthly Letter

12 Economy

14 Key financial market drivers

16 Asset class overview: Key forecasts Equities Bonds Currencies Commodities and alternative investments

24 Investment ideas: Preferred investment views Investment ideas

30 Disclaimer

UBS House ViewMark Haefele Global Chief Investment Officer Wealth Management

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UBS House View Investor’s Guide – July 20174

Tactical preferencesAsset allocationDecent economic growth and moderate inflation pressures have helped the performance of equity and bond markets. As both global growth firms and the risk of deflation are disappearing, several central banks are taking the opportunity to move further towards a gradual normalization of mone-tary policy. The European Central Bank recently judged risks to the Eurozone economy as broadly balanced and removed any reference to lower inter-est rates. This shift should pave the way for an announcement in September of an exit from its quantitative easing program next year. The US Fed-eral Reserve hiked US interest rates this month. The Fed is likely to raise rates once more later this year, and start a gradual unwinding of its balance sheet. We expect this environment to continue to be sup-portive for risk assets and maintain our risk-on stance with an overweight position in global equi-ties against high-quality bonds.

EquitiesWe maintain our overweight position in Eurozone equities against UK stocks. We believe consensus expectations for UK corporate earnings growth of 22% this year are too high. The benefit from a weak pound should disappear by 4Q17, while the UK market is less sensitive to global economic growth. We expect earnings growth of Eurozone companies to catch up with UK firms, supporting stock prices in the region. We maintain an over-weight position in global equities (and US high grade bonds) against euro high yield (HY) bonds

BondsEuro HY spreads have continued to compress, bring-ing the yield-to-maturity to a new all-time low of 3.4%. We think the asset class is expensive, with an average price of EUR105.5 limiting price upside, and we see better value in a mix of global equities and high grade bonds. We remain overweight on US HY bonds due to the relatively attractive yield of 6% and improving corporate fundamentals. We expect the US HY trailing 12-month default rate to be sta-ble at around 2.5% over the next 12 months, so that investors in US HY can still benefit from the carry. The recent plunge in oil prices started to weigh on the large energy sector. WTI remaining below USD 45 per barrel for an extended period is a key risk for US HY, but not our base case.

Foreign exchangeWe are opening an overweight position in the Canadian dollar against the Australian dollar. Cana-da’s economy is recovering well from the oil-induced weakness, while the Australian economy is still struggling with structural changes and a disin-flationary environment. We are overweight on the euro against the US dollar; and the Swedish krona (SEK) against the Swiss franc (CHF). The euro’s appreciation against the USD has further room to go, given the euro’s undervaluation, and the on going “catchup” potential of Eurozone eco-nomic growth, monetary policy and investor posi-tioning. Sweden’s Riksbank may become more hawkish, while the good investment backdrop may see the defensive, low-yielding CHF weaken as investors reallocate their CHF holdings to more growth-sensitive currencies.

UBS House View Investor’s Guide – July 2017 5

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ASSET CLASSESTactical asset allocation

as of 22/06/2017

Strategic Asset Allocation

Tactical Asset Allocation

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* Includes –2% underweight of EUR HY and +2% overweight of US HY.

Overweight: Tactical recommen -dation to hold more of the asset class than specified in the strategic asset allocation

Neutral: Tactical recommendation to hold the asset class in line with its weight in the strategic asset allocation

Underweight: Tactical recommen-dation to hold less of the asset class than specified in the strategic asset allocation

Tactical preferences

The paradox of historical knowledgePredicting the futureForecasting the future appears to be increasingly difficult, despite the growing volume of data and rising connectivity. More than 80% of our clients believe now is the most unpredictable period in history.

Market stabilityWe believe favorable market conditions can remain in place in the short-term, but investors need to adjust to lower long-term visibility. Investment in longer-term investment themes can help cut through the uncertainty.

Policy support Central bankers have no need to aggressively tighten policy to restrain inflation or leverage. Ongoing accommodative monetary policy should support global equities, where we are overweight in our tactical asset allocation.

Overweight Canadian dollarWe add an overweight position in the Canadian dollar relative to the Australia dollar. The Canadian economy is recovering from a period of slow growth, while Australia is struggling with weak commodity prices.

Mark HaefeleGlobal Chief Investment OfficerWealth Management

Follow me on LinkedInlinkedin.com/in/markhaefele

Follow me on Twittertwitter.com/UBS_CIO

In an age of big data and mass connectivity, our knowledge of the world has never been greater. Yet our ability to predict the future has arguably never been worse. A recent UBS Investor Watch survey shows that 82% of our clients think that now is the “most unpredictable” time in history1.

In his recent book, Homo Deus, historian Yuval Noah Harari discusses the para-dox of historical knowledge. It describes how the more information we have, the better we come to understand our past and present. But that improved understanding quickly changes our behavior, outdates our knowledge and, by implication, reduces our understanding of the future.

The concept applies in finance, where novel and profitable trading strategies are quickly copied, exhausting their effectiveness. And it applies to our political systems, where new schools of thought quickly integrate with existing ideologies, making the long-term direction of political movements uncertain. Even in the very short term, we can see how new information streams, like social media, have made predicting elections more difficult. One reason is because polls are increasingly used to inform campaign targeting, changing the very opinions that the polls present.

But despite perceptions of uncertainty, we also have to acknowledge that by some measures, this is also one of the most predictable periods in history.

US economic growth is close to its most stable on record. The average change (up or down) in growth over the past five years has been 0.6%, compared to a long-term average of 4.7%, and a pre-WWII average of 6.5% (Fig. 1). FX market volatility is below pre-crisis averages and realized equity market volatility is at its lowest level in at least two decades (Fig. 2). Meanwhile, the VIX index of expected equity market volatility this month hit its lowest level since 1993, and the MOVE

1 UBS Investor Watch May 2017

http://linkedin.com/in/markhaefele

http://twitter.com/UBS_CIO

Monthly Letter


Index of expected bond market volatility is close to its lowest level in four years. And business confidence is high in the US, Europe, and emerging markets for the first time since 2013.

So how do we reconcile the high levels of investor uncertainty with expectations of market stability? I think it’s a matter of timeframes. In the short term, I see good reason to believe that favorable market conditions can persist, albeit perhaps not with such low levels of volatility. We maintain a risk-on stance in our global tacti-cal asset allocation, with overweight positions in Eurozone and global equities.

The paradox of historical knowledge means that long-term visibility is consider-ably lower. But investors can use this to their advantage by understanding and mitigating risks better than others, and by finding the “less uncertain” uncertain-ties to invest in.

Making sense of the short termThe US is now in its second-longest postwar economic expansion, global equities are in the ninth year of a bull market (over which time they have returned 220%), and it has been 16 months since a correction. It feels as though investor mistrust over current low levels of volatility is increasing with the length of the expansion.

The US is enjoying its second- longest economic expansion since World War II.

Fig. 1: US economic growth has become more stable Real GDP growth (annual in %)

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Source: Madderson, International Monetary Fund, as of June 2017

Fig. 2: Volatility has fallen in both the equity and bond marketsS&P 500 volatility and the volatility of the Bloomberg government bond index

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Monthly Letter


Although we are watching for the inevitable end to this cycle, today we do not see the usual preconditions for a bear market. Cycles tend to end when policy-makers aggressively tighten policy due to compressed risk premiums, the house-hold or financial sector takes on excess leverage, and/or inflation rises due to capacity constraints. The past four recessions in the US were preceded by hiking cycles which saw rates rise by between 1.75% and 4.25%.

But today, aggressively higher rates look unlikely. Problems with capacity are not obvious from levels of inflation. The Fed revised down its inflation forecast at its recent meeting, and the IMF’s global CPI reading is at 2.8%, versus a 15-year average of 3.6%. Outside of China, use of financial leverage is not high – US household debt-to-GDP is still at a post-crisis low of 80% (Fig. 3), while Eurozone debt service ratios are substantially lower than pre-crisis levels. And relative to cash rates, most asset valuations are outside of bubble territory. The Fed might move rates steadily higher, but with little reason to tighten policy aggressively, we expect central banks to remain in generally accommodative mode. So, short of some exogenous shock (which is as likely this year as in any year), I think we can still be confident in a policy-supported continuation of the cycle, and we remain overweight in global equities relative to high grade bonds in our global tactical asset allocation.

All that said, valuations have moved higher in recent months, and volatility mean reverts over time. I think it is reasonable to assume that returns will not be as high in the future as in the recent past. So although we keep a risk-on stance, we also hold a number of relative positions in equities, credit, and foreign exchange, which are largely independent of the direction of the broad equity market:

• Overweight Eurozone equities vs. UK. We expect Eurozone economic and earnings momentum to surpass the UK in the months ahead. UK earnings are likely to be negatively affected by the fall in the price of oil, relative stability in sterling, signs of weakening economic data, and ongoing political uncertainty.

• Overweight US HY vs. HG bonds and underweight EUR high yield vs. global equi-ties and USD HG bonds. The 6% yield in the US remains attractive, providing a yield pick-up of 3.6% vs. high-quality bonds. In contrast, we think that EUR HY valuation is unappealing, with spreads having compressed to their post-crisis lows. This has pushed the EUR HY yield to an all-time low of 3.4%, limiting price upside.

Aggressive monetary policy tightening looks unlikely.

We remain overweight in global equities relative to high grade bonds.

But higher valuations make it reasonable to assume that future returns will not be as high as in the recent past.

Fig. 3: Household debt levels have been falling in most developed countriesPercentage point change in household debt to GDP since 2008

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Source: Haver Analytics, UBS WM CIO as of June 2017

Germany UK US Japan

Monthly Letter


Fig. 4: Government debt has been on the rise Net debt as a % of GDP

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• Overweight EUR vs. USD. Although the euro has rallied 3% against the US dollar in the past three months, we see scope for continued upside as the Eurozone economic expansion continues to gain traction. We forecast EURUSD at 1.16 over the next six months.

• Overweight SEK vs. CHF. The Swedish economy is performing well (the latest PMI is at 58.8), inflation expectations are at the highest level since 2012, and we expect the Riksbank to turn its attention to rate hikes soon. Meanwhile, we expect the Swiss franc to suffer as money that had sought safety in the franc flows elsewhere, now that political concerns in the Eurozone have ebbed.

• Overweight CAD vs. AUD. We add an overweight position in the Canadian dol-lar relative to the Australian dollar. The Canadian economy is recovering well from weakness in 2015, while the Australian economy continues to struggle with weaker commodity demand from China and falling iron ore prices. The Australian currency is 18% overvalued relative to the Canadian dollar. And investors are currently heavily short Canadian dollars, suggesting scope for upside surprise if the Bank of Canada turns to rate hikes.

Preparing for the long termBeyond the immediate future, the paradox of historical knowledge forces us to be humble about predicting which of many possible futures will be realized. We cannot be certain, for example, whether or not robots will prove to be a com-plement or a substitute for labor, or if protectionism will replace globalism as a predominant political ideology. But investors still need to plan for the long term and come to decisions.

So how do we play this uncertain reality to our advantage?

First, it is important that investors don’t equate uncertainty and ambiguity with a need to “fight the last war” and run to cash in their home currency or gold. We know neither where the next crisis will come from, nor, perhaps more importantly, which solutions different regional policymakers will choose. Even apparently chal-lenging scenarios could prove to be favorable for risky asset prices, if, for instance, central banks respond by monetizing high levels of government debt (Fig. 4). But not every country, or monetary bloc, might choose the same solution.

Long-term visibility has decreased.

We don’t know where the next crisis will come from or which solutions different regional policymakers will select.

Monthly Letter


We believe it is best to diversify holdings across regions as well as monetary blocs, holding a combination of equities, bonds, and alternatives to help earn returns in the short term, while reducing the risk of being caught on the wrong side of a crisis or a crisis-solution.

Second, the increasing sense of uncertainty is likely to lead more investors to seek out the areas of least uncertainty. Our longer-term investment themes aim to benefit from this trend. We might not know how an individual country will be governed in 20 years’ time, but we can know with a high level of certainty that its population will, on average, be older. Employment growth might be hard to predict, but population growth is much easier. The UN predicts with 90% confidence that the global population will be greater than 9 billion by 2040, from 7.5 billion today. And although investment flows are hard to forecast with precision, the UN’s expectation of substantial flows into the world’s largest cities looks well founded (Fig. 5). Around 55% of the world’s population today lives in urban areas, and that is set to rise to 65% over the next 30 years.

We expect companies exposed to these trends to see higher-than-GDP levels of sales growth through the economic cycle. Robotics manufacturers helping devel-oped countries deal with shrinking working-age populations, companies which support energy efficiency, helping the world deal with its growing population, and waste management companies helping growing cities deal with increases in refuse, are just a few examples.

As a result, we recommend diversification across regions and monetary blocs.

We also recommend long-term themes, based on inexorable demographic trends such as urbanization.

Fig. 5: The world’s population is becoming more concentrated in citiesNumber of people, in million

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Monthly Letter


UBS Investor Forum Insights

At this month’s Investor Forum participants debated the outlook for Europe. Participants were generally upbeat on the euro and Eurozone equities.

– Emmanuel Macron was seen as a game changer for European politics, with guests agreeing that his election could have positive implications for the wider continent in the long term.

– In contrast, participants argued that Britain’s negotiations to leave the EU would be long and painful, likely taking several years. While it was argued that the implications for financial markets were hard to assess at this stage, there was a consensus that it would be bearish for the pound, with some participants holding active short positions.

Finally, investors should note how the military resolves the difficulty of engaging in an uncertain environment (a “Fog of War”) through a common understanding of principles, which can be applied in new situations. Investors can consider fol-lowing principles of their own: committing to a long-term plan to meet financial goals, committing to regular rebalancing, and playing out potential future sce-narios, both bad and good. Luck is important in investing, but discipline can be a very good substitute. I believe such principles can allow investors to proceed in today’s low volatility environment with confidence, while understanding a clear plan of action for our uncertain future.

Mark HaefeleGlobal Chief Investment OfficerWealth Management

Investors should commit to a long-term plan to meet their financial goals, including regular rebalancing.


EconomyEurozone

Short-term tailwinds to abateHouse ViewProbability: 65%*

Ricardo Garcia, economist

We expect the Eurozone economy to benefit from the strong global industrial backdrop. However, the economy is likely to lose steam over the course of this year as the euro strength-ens, higher oil prices start to bite into consumption and the effectiveness of monetary policy keeps declining. Inflation in turn should consolidate and oscillate relatively close to the ECB’s inflation target of just below 2%. We expect the ECB to announce in September 2017 its intention to wind down the QE program over 6–9 months as of January 2018.

In Germany, fundamentals such as consumer confidence, construction and capital-expenditure planning remain robust, but the anticipated rise of the euro should limit this year’s economic growth potential. We see a 60% chance for a grand coalition, and a 70% chance for Merkel to retain the Chancel-lery. In France, a healthier construction sector and more corpo-rate investment, given the new business-friendlier government, should help accelerate French economic growth in 2017.

Italian economic growth should consolidate at low rates, supported by a stabilizing construction sector. We expect a general election in early 2018. Spain is still posting strong growth, though momentum is set to moderate.

US

Moderate growth in the USHouse ViewProbability: 70%*

Brian Rose, economist

We expect the US economy to grow at a moderate pace over the next 12 months. The labor market is still improving, with the unemployment rate at 4.3% and signs that labor short-ages are becoming more widespread. Rising household income should enable robust consumer spending.

Housing starts and home prices should remain on an upward trend, contributing modestly to overall economic growth.

Energy sector fixed investment has bottomed and the manu-facturing sector has shown improvement in recent months. Overall investment should grow at a moderate pace.

The most recent data shows inflation slowing, but we expect a gradual upward trend in the quarters ahead. A tight labor market and rising producer prices will eventually feed through into consumer price inflation.

Political uncertainty is high and is threatening to become a drag on growth. We expect a fierce fight over the FY18 budget this fall. Deregulation should provide some benefit over time. We do not expect the Trump administration to cause any severe disruptions to trade.

The Fed hiked by 25 basis points on 14 June and we expect another 25bps of tightening by the end of this year. The Fed will also begin gradually shrinking its balance sheet.

In developing the CIO WM economic forecasts, CIO WM economists worked in collaboration with economists employed by UBS Investment Research. Forecasts and estimates may change without notice.

*Scenario probabilities are based on qualitative assessment.

Global growth in 2017 expected to be: 3.7%Real GDP growth in % Inflation in %2016 2017F1 2018F1 2016 2017F1 2018F1

US 1.6 2.2 2.4 1.3 2.3 2.0China 6.7 6.7 6.2 2.0 1.9 2.0Eurozone 1.7 1.7 1.4 0.2 1.6 1.6Germany 1.8 1.7 1.4 0.4 1.7 1.8France 1.1 1.4 1.6 0.3 1.1 1.1Italy 1.0 0.9 0.8 –0.1 1.6 1.4Spain 3.2 2.8 2.0 –0.3 2.0 1.2UK 1.8 1.4 0.7 0.7 2.6 2.8Switzerland 1.3 1.4 1.6 –0.4 0.4 0.9Russia –0.2 1.3 1.7 7.0 4.0 4.0World 3.1 3.7 3.7 2.6 2.8 2.7

Sources: Reuters EcoWin, IMF, UBS; as of 27 June 2017 1 UBS Forecasts


Economy

China

Striking a balance between stability and deleveragingHouse ViewProbability: 80%*

Yifan Hu, economist Kathy Li, economist

China’s economy has moderated since April from strong 1Q momentum, and could face more challenges in 2H17 as the property market slows and infrastructure investment moder-ates. The possibility of a hard landing is limited given support-ive policies.

2017 CPI inflation should remain mild, while PPI inflation should moderate further in positive territory. May CPI inflation remained as low as 1.5% y/y, as food prices continued falling. PPI inflation further declined to 5.5% y/y from 6.4% in April, weighed by continuous falling commodity prices and moderat-ing manufacturing.

2017 investment continues to decelerate, but is buffered by infrastructure investment; retail sales remain resilient. Jan–May fixed asset investment decelerated further to 8.6% y/y ytd from 8.9% in Jan–Apr, dragged by slowing property and infra-structure investment. May retail sales remained at 10.7% y/y, with mixed performance across the subcategories.

2017 exports should rebound modestly in the coming months on the back of global cyclical growth recovery. May exports grew by 8.9% y/y, up from 8% in April, driven by recovering external demand especially in the US and EU.

2017 monetary policy is to be more flexible than expected. Prudent and neutral is the tone set by the PBoC. Multiple financial tightening measures have been implemented this year to push de-leveraging, leading to falling liquidity, rising interest rates and slowing credit. However, we also expect monetary policy to become more accommodative when stabil-ity is challenged.

2017 fiscal policy should remain supportive. Infrastructure investment from local governments remains an important buf-fer for maintaining economic stability.

China’s FX reserves should likely remain around USD 3trn by 2017 year end. May FX reserves rose slightly to USD 3.05trn, up for four straight months, greatly alleviating market con-cerns about large capital outflows.

Switzerland

Hard data does not (yet) live up to soft dataHouse ViewProbability: 60%*

Alessandro Bee, economist Sibille Duss, economist

The manufacturing PMI eased slightly in May but remained on an elevated level, indicating a pick-up in economic activity.

1Q17 GDP grew by 0.3%, supported by a recovery in foreign trade. However, hard data in Switzerland did not live up (yet) to the strong soft data from sentiment indicators, nor to upbeat European data points.

We foresee Swiss GDP to grow by 1.4% in 2017. The eco-nomic recovery is likely to broaden, but GDP growth will not accelerate strongly. Only in 2018 do we expect GDP growth to return to trend (1.6%).

Employment growth accelerated slightly in 1Q17. The reduc-tion in unemployment also seems to have gained momentum in May. As the recovery broadens in the coming quarters, the unemployment rate is likely to fall to 3.2% in 2017 from 3.3% last year.

CPI inflation rose by 0.5% year-on-year in May, but may slow in 2Q as the base effect from oil subsides. However, we expect inflation to average 0.4% in 2017 – supported by a weaker Swiss franc in the second half of the year.

The Swiss National Bank (SNB) intervened strongly in FX mar-kets since the end of January to prevent a strong appreciation of CHF. However, the SNB could reduce its FX interventions, as the election of Emmanuel Macron as new French president reduced risk aversion and in turn stopped further inflows into the Swiss franc. Nonetheless, a rate hike is not on the cards until mid–2018. The SNB will not raise rates before the ECB has slowed down its QE program.


Key financial market driversCentral bank policyHouse ViewProbability: 75%*

Brian Rose, Ueconomist Ricardo Garcia, economist Paul Donovan, UBS WM Global Chief Economist

The Fed has been relatively explicit about its interest rate inten-tions this year. A further rate increase seems likely in 2H17. The balance-sheet-to-GDP ratio has been declining “naturally” for some time as GDP has grown faster than the Fed’s bond holdings in nominal terms. The Fed has set out its intention to reduce the size of its balance sheet by not reinvesting all of the proceeds of maturing bond holdings. This should begin in 2H17, and markets will look at Fed statements closely to determine the start date.

The ECB continues to pursue its predetermined quantitative policy path, with bond buying staying at EUR 60bn. Disquiet about the ongoing bond purchases has resulted in a shift in the language of the ECB statement, and an announcement at the September ECB meeting that bond purchases will taper in 2018 seems likely.

The BoE is expected to leave policy unchanged for now. The impact of sterling’s earlier weakness continues to show up in headline inflation measures, and this has raised concerns for two of the remaining policy makers. The Swiss National Bank (SNB) has held policy steady. The Bank of Japan (BoJ) continues to leave policy unchanged.

Political risksHouse ViewProbability: 70%*

Paul Donovan, Global Chief Economist, UBS WM

Political uncertainty still has a high profile in the media, but lit-tle impact on financial markets. Investors will react more obvi-ously to time-specific events (e.g. elections) than they do to ongoing processes (US Congressional investigations, UK exit negotiations).

US President Trump continues to create uncertainty through an unusual and unconventional style of government. Relations with Congress in the context of ongoing investigations into the administration will dictate progress on fiscal and other leg-islation. Investor concerns are likely to focus on what tax reform proposals emerge in 2H17.

Investors will expect French President Macron’s large majority in the national assembly to deliver domestic structural reform although institutional obstacles should not be underestimated. Macron’s ability to lead European reform will be closely watched. German political risk is downplayed by financial mar-kets, with Italian politics and the negotiations around the UK exit the main political focus.

The economic causes of anti-estab politics remain. Support for anti-estab politics either as new parties or as policy shifts within established parties may persist. The market may turn complacent about the economic drivers of inequality and anti-estab politics.

Syria and North Korea remain the key international political risks for the near term. North Korea has assumed greater prominence, but markets are unlikely to attribute any mean-ingful probability to disaster scenarios for now.


Key financial market drivers

Key dates

5 July 2017USUS Federal Reserve minutes

6 July 2017EuropeEuropean Central Bank minutes

7 July 2017EuropeG20 Summit in Hamburg

Solid US earnings growthHouse ViewProbability: 60%*

Jeremy Zirin, strategist David Lefkowitz, strategist

After rising at the fastest pace in six years in 1Q17 (+15%), we expect earnings growth to remain solid although at a slightly slower pace for the rest of the year. The improving profit trend is underpinned by solid US consumer spending, a rebound in US manufacturing activity as energy investment spending and emerging market demand bottom out, and a more favorable environment for financials. Leading indicators of profit growth, such as bank lending standards, remain supportive.

The Trump administration’s policies may further boost earnings growth through lower taxes (corporate, individual, and the repatriation of overseas cash), infrastructure spending, less regulation, and a steeper yield curve (which benefits banks). However, many details have yet to be worked out and we do not expect any meaningful policy changes until after the sum-mer, at the earliest. Overall, these policies may boost earnings by 5–15% over the next few years, with the bulk of the bene-fits stemming from corporate tax reform (~10%).

We estimate S&P 500 EPS of USD 132.50 (11% growth) for 2017, and USD 145 (9% growth) for 2018. These estimates include USD 2.50 (for 2017) and USD 5 (for 2018) in tax reform benefits.

The prospects for tax reform remain uncertain. Therefore, our estimates include roughly half of the expected benefits from tax reform. If this succeeds, EPS should reach USD 150 by 2018.

Fears that high profit margins will decline in the near term appear overblown. Margins are not higher than normal exclud-ing the tech sector. Also, margins typically only decline when the economy enters a recession. Finally, the recent pickup in wages is unlikely to crimp profitability. Labor costs do not have a strong correlation with profit margins.

Asset class overview

Key forecasts22 June 2017

6 month forecast

Asset class TAA1 BenchmarkHouse View

Positive scenario

Negative scenario

EquitiesUS S&P 500 2,475 2,800 2,000

Eurozone Euro Stoxx 405 450 315

UK FTSE100 7,600 8,150 6,200

Japan TOPIX 1,650 1,770 1,300

Switzerland Swiss Market Index 9,200 9,800 7,500

Emerging markets MSCI EM 1,035 1,125 800

Listed real estate RUGL Index 4,600 4,850 4,200

BondsUS high grade bonds USD High Grade: Eurodollar AA+ 5–7y

yield2.80 (yield) 1.80 (yield) 3.20 (yield)

European high grade bonds EUR High Grade: EuroAgg AA+ 5–7y yield

0.20 (yield) –0.20 (yield) +0.50 (yield)

US corporate bonds Bloomberg Barclays US Intermed. Corp. spread

90–110bps 80bps 250bps

Euro corporate bonds Bloomberg Barclays EuroAgg Corporate spread

105–120bps 80bps 250bps

US high yield bonds BoAML US high yield spread 380–420bps 350bps 1,100bps

Euro high yield bonds BoAML Euro High Yield Index spread 340–380bps 270bps 1,200bps

Emerging Market Sovereign Bonds in USD

EMBI Diversified 300bps 280bps 500bps

Emerging Market Corporate Bonds in USD

CEMBI Diversified 300 bps 250bps 530bps

Alternative investmentsGold (6 months) USD/oz USD

1,250/ozUSD

1,400/ozUSD

1,100/ozBrent crude oil (6 months) USD/barrel USD

60/bblUSD

65–70/bblUSD

35–40/bbl

Currencies Currency pair

USD USDCHF 0.98USDJPY 110

EUR EURUSD 1.16EURCHF 1.14EURGBP 0.89

GBP GBPUSD 1.30GBPCHF 1.28

Past performance is no indication of future performance. Forecasts are not a reliable indicator of future performance.

Overweight

Neutral

Underweight

Source: UBS, Bloomberg1 TAA = Tactical asset allocation2 Month-on-month performance in %3 Year-to-date performance in %


EquitiesUS

Neutral

We expect equities to grind higher globally – including in the US – and are overweight on global equities over government bonds. Corporate profit growth has rebounded and is now on solid footing, driven by healthy consumer fundamentals and a recovery in the industrial sector. Stimulative government policies – tax reform, deregulation, infrastructure spending – have the potential to boost the outlook further. If Fed rate increases are gradual and in sync with improving nominal growth, equity markets will likely take them in their stride. Valuations are higher than average, but in line with the macro backdrop (low inflation and durable growth), and attractive versus bonds. Potential trade frictions and the execution of policy initiatives are downside risks.

David Lefkowitz, strategist Jeremy Zirin, strategist Edmund Tran, strategist

S&P 500

As of 21 June 2017: 2,436 Six-month target

House View 2,475

Positive scenario 2,800

Negative scenario 2,000

EurozoneOverweight

We are overweight on Eurozone equities. Eurozone companies are benefiting strongly from the positive domestic and global macroeconomic backdrop. The combination of the companies’ comparably high gearing to global growth and still easy monetary conditions, as the ECB keeps monetary conditions loose, should support earnings in coming quarters. Political risks have subsided further as the French parliamentary election outcome delivered a clear majority for reform-oriented parties. Our most preferred sectors are energy, materials and financials.

Markus Irngartinger, strategist Bert Jansen, analyst

Euro StoxxAs of 21 June 2017: 385 Six-month target

House View 405

Positive scenario 450

Negative scenario 315

UKUnderweight

We underweight the UK against Eurozone equities. The valuations are about similar for both markets. We believe the balance of risks for the UK earnings outlook is to the down-side, while it is to the upside for Eurozone earnings. The boost from the weak pound is overestimated and should fade completely by the third or fourth quarter. The majority (nearly three quarters) of the UK earnings growth therefore will be driven by the earnings recovery in commodities. However, the weak start to the year for underlying commodity prices puts greater risks around the 2017 profit estimates. The UK economy is expected to slow, holding back the 30% exposure to domestic revenues, and the UK market is less leveraged to global growth than the Eurozone market due to its more defensive sector make-up.

Caroline Simmons, strategist

FTSE100


House view 7,600




OverweightTactical recommendation to hold more of the asset class than specified in the strategic asset allocation

NeutralTactical recommendation to hold the asset class in line with its weight in the strategic asset allocation

UnderweightTactical recommendation to hold less of the asset class than specified in the strategic asset allocation



Emerging marketsNeutral

We are neutral on emerging market (EM) equities in our global portfolio. EM economic activity numbers are stabilizing, and manufacturing sentiment is turning more positive. Corporate earnings growth is improving across EM regions. EM equities are trading at a discount to their developed market counter-parts. Geopolitical tensions, potential trade friction and USD strength are downside risks. Our most preferred markets are China, Indonesia, Thailand, Russia, Turkey and Brazil; our least preferred markets are Taiwan, Malaysia, Philippines and South Africa.

Jorge Mariscal, CIO Emerging Markets Soledad Lopez, strategist Lucy Qiu, wtrategist

MSCI EM

As of 21 June 2017: 1006 Six-month target

House View 1,035


Negative scenario 800

SwitzerlandNeutral

We are neutral on Swiss equities in our global portfolio. After falling for two years, we expect corporate earnings to grow this year. Consensus expectations may be too optimistic; we expect mid-single-digit growth this year and next. Due to the market’s defensive sector composition, other regions may benefit more from the robust global economic expansion. Exchange rates are a modest positive this year. Last year’s compression in margin and demand growth for financials, as well as cyclical consumer and industrial companies, set a lower base for this year. The dividend yield is attractive, but we believe the Swiss equity valuation is not very compelling.

Stefan R. Meyer, analyst

Swiss Market Index


House View 9,200



JapanNeutral

We are neutral on Japanese equities. We forecast 1% earnings growth in FY17 (which ends in March 2018) after earnings grew 7% in FY16. We expect USDJPY to remain largely flat, around 110, for the next 12 months. As such, currency movements are unlikely to support corporate earnings. That said, we believe the downside risk for the Japanese equity market is limited by the relatively large purchases by domestic investors like the Bank of Japan (BoJ). We prefer share-buy-back and high-dividend-yield stocks as well as companies that benefit from the tightening labor market.

Toru Ibayashi, analyst Chisa Kobayashi, analyst

TOPIX


House view 1,650



Listed real estateEarnings may rise by only 4% p.a. (ex. emerging markets) in 2017–18 based on internal growth opportunities, some positive rental reversion and diminishing refinancing costs. This growth rate may stagnate around 4% in 2019 as the real estate cycle has gradually abated since mid–2015. Our assumption is, however, that future movements in market yields will not negatively surprise, as a needed acceleration in rental growth is lacking. The 3.7% dividend yield will likely remain the key performance driver. The listed universe has delivered no capital growth since the beginning of 2015. We even expect a gradual de-rating, should the still high direct property market values erode in coming quarters. The universe is trading at a 7.3% discount to net asset value versus 6.5% historically.

Thomas Veraguth, analyst Maciej Skoczek, analyst

RUGL Index


House view 4,600





BondsUS high grade bonds

Underweight

Yields continued to drift lower as inflation readings came in below expectations. At the June meeting, the FOMC hiked rates by 25bps and expressed confidence that inflation will hit the medium-term target. The Fed projects one more hike this year, and confirmed that balance sheet normalization will start this year. We expect long-term USD yields to move slightly higher and the yield curve to flatten. The biggest risk to our forecast is continued below-target inflation. Other risks include US political instability and a slowing Chinese economy. We are underweight on HG bonds versus global equities, US HY bonds and overweight on USD HG bonds versus euro HY.

Douglas S. Rothstein, Francesco Mandala and Patrik Ryff, strategists

USD High Grade: Eurodollar AA+ 5–7y yield

As of 21 June 2017: 2.39 (yield) Six-month outlook

House view 2.80 (yield)

Positive scenario 1.80 (yield)

Negative scenario 3.20 (yield)

European high grade bondsUnderweight

Bund yields dropped following a more dovish ECB meeting than expected. Inflation expectations were lowered as Presi-dent Mario Draghi noted that patience is required for labor market conditions to improve. The ECB has maintained guidance that asset purchases will continue until the end of the year and rates will not rise until after QE ends. We expect yields in EUR and CHF to rise over our six-month tactical horizon. The ECB will likely further reduce its purchases next year. The rise should be modest as Bunds remain supported by the steepness of the curve and demand for risk-free assets. Swiss rates remain closely tied to EUR rates. The ECB reduced the pace of monthly asset purchases to EUR 60bn as of April, but has kept its balance sheet on a steady growth path.

Francesco Mandala, strategist Douglas S. Rothstein, strategist Patrik Ryff, strategist

EUR High Grade: EuroAgg AA+ 5–7y yield

As of 21 June 2017: –0.02 (yield) Six-month outlook

House view 0.20 (yield)

Positive scenario –0.20 (yield)

Negative scenario +0.50 (yield)

US corporate bondsNeutral

Investment grade (IG) corporate bond spreads were broadly unchanged over the month, even as strong primary market activity in May pushed gross issuance to USD 593bn this year, a record high. The average yield-to-maturity on USD IG bonds remained stable at around 2.7%. Total returns were positive due to falling benchmark rates. The current spread is at the lower end of our forecast range. We don’t see a catalyst for spreads to tighten further from here. Total returns will likely be driven by the decent carry and by the expected rise in US Treasury yields, leading to marginally positive returns over the next six months. We are tactically neutral.

Philipp Schöttler, strategist Carolina Corvalan, strategist

Bloomberg Barclays US Intermed. Corp. spreadAs of 21 June 2017: 90bps Six-month outlook

House view 90–110bps

Positive scenario 80bps

Negative scenario 250bps

Euro corporate bondsNeutral

Euro investment grade (IG) bond spreads were slightly wider over the month as underlying government bond yields decreased. This led to a drop in the average IG yield-to-matu-rity to 0.8%, the lower end of its recent range. The low starting level in terms of yields, and our outlook that the ECB will become less accommodative and start the QE taper discussion later this year, limit total returns over the next six months. We expect rising government bonds yields, which will weigh on returns, while spreads are currently at the low end of our forecast range. We are tactically neutral.


Bloomberg Barclays EuroAgg Corporate spreadAs of 21 June 2017: 106bps Six-month outlook






US high yield bondsOverweight

USD high yield (HY) spreads continued to grind tighter on the back of continued low market volatility and limited new issuance, before widening very recently as oil prices dropped. We are overweight on USD HY bonds against high grade bonds due to the attractive carry. Corporate earnings are expected to remain robust, lending standards are benign and economic growth remains solid, mitigating default risks. Price upside is limited, in our view, as spreads are close to the lower end of our forecast range. The trailing 12-month default rate dropped to 2.2% in May, as the impact of the commodity-related default cycle is fading. We expect the default rate to remain steady over the next 12 months. A sustained oil price level below USD 45/bbl and a spike in Treasury yields remain key risks.


BoAML US high yield spread

As of 21 June 2017: 385 bps Six-month outlook



Negative scenario 1,100bps

Euro high yield bondsUnderweight

Euro high yield (HY) spreads further tightened over the month as political risks in Europe continue to fade and new issuance remains limited. Spreads have reached their post-crisis low, pushing the yield to a new all-time low of 3.4%. We don’t see much upside from current valuations and remain underweight on euro HY bonds against global equities and US high grade bonds. The trailing 12-month default rate was stable at the low level of 1.0% in May. Defaults will likely remain below 2% over 12 months. The underweight position on euro HY helps mitigate the downside in risk scenarios, especially given the sizeable index exposure to peripheral issuers (~30%) and banks (~20%).


BoAML Euro High Yield Index spread

As of 21 June 2017: 282bps Six-month outlook



Negative scenario 1,200bps

EM sovereign bonds in USDNeutral

Emerging market (EM) sovereign credit has delivered a mid-single-digit return this year based on tighter spreads and lower US Treasury yields. Our base case calls for credit spreads being supported around current levels by improving EM fundamentals, gradually recovering energy prices and a benign external backdrop. That said, the administration in the US raises risks associated with US monetary and fiscal policies, global trade, immigration and geopolitics. We advise investors to remain neutral on EM credit in globally diversified portfolios. We favor sovereign and select high yield credits, such as Brazil, Argentina, Indonesia, Kazakhstan, Turkey and Qatar. We also added exposure to Venezuela on the increased likelihood of a regime change.

Michael Bolliger, analyst Alejo Czerwonko, atrategist Jérôme Audran, analyst

EMBI Diversified

As of 21 June 2017: 314bps Six-month outlook

House view 300bps



EM corporate bonds in USDNeutral

Emerging market (EM) corporate credit has delivered a mid-single-digit return so far this year on tighter spreads and lower US Treasury yields. Over the next six months, we expect spreads to trend moderately higher given less appealing valuations. However, spreads will likely remain supported by improving EM macro fundamentals, higher oil prices, lower EM corporate default rates and, more generally, a still-supportive external backdrop. We advise investors to remain neutral on EM credit in globally diversified portfolios and to be selective, as reflected in our model portfolio allocation and segments highlighted in the preferences section.

Michael Bolliger, analyst Jérôme Audran, analyst Carolina Corvalan, strategist

CEMBI Diversified

As of 21 June 2017: 291 bps Six-month outlook

House view 300bps





CurrenciesThomas Flury, strategist Daniel Trum, strategist Wayne Gordon, strategist

EURUSD: The start of a long-term recovery. The US Federal Reserve hiked its policy rate in March and in June. The Fed should further tighten policy only very gradually, given continued weak inflation. The European Central Bank (ECB) seems to have started discussing the end of its easing mea-sures, which should support a long-term EUR rebound. The solid global economic growth and the strong undervaluation should help the euro to appreciate. Political tensions of the Trump administration are adding to a negative USD sentiment. USDJPY: Fixed JPY yield curve. The Bank of Japan (BoJ) fixed the yield curve by setting the target for the 10-year rate at around zero and keeping the policy rate at negative 10 basis points. The rise in global yields has pushed Japanese 10-year yields above zero, and a further increase could force the BoJ to step up its bond purchases to keep Japanese yields fixed. We expect the BoJ to eventually lift the target for the 10-year yield and for the JPY to strengthen moderately versus the USD while weakening relative to the euro. USDCAD: CAD to outperform now. The Canadian recovery has gained speed in recent months and is likely to continue throughout this year. We expected the Bank of Canada (BoC) to become more hawkish later in the year. But, in a speech in early June, both the Governor and Deputy Governor have opened the door for earlier rate hikes. We therefore expect USDCAD to move quicker below 1.30 than initially expected and see it falling towards 1.25 over the medium term. AUDUSD: RBA to remain somewhat dovish. With the Fed raising rates, and coal and iron ore prices likely to fall on rising supply, we expect the AUD to stay under pressure. In light of comparably low Australian inflation, Reserve Bank of Australia (RBA) policy could turn dovish again if the housing market weakens. Further US rate hikes eat into the AUD’s attractive carry and should therefore prevent the AUDUSD exchange rate from moving higher. GBPUSD: Uncertainty around Brexit remains. UK economic data has weakened only slightly, while the pound is highly undervalued. British Prime Minister Theresa May lost her majority in the snap elections. But we still expect Brexit negotiations to start and eventually agree to terms to prevent a “cliff” situation when leaving the EU. We expect GBPUSD to remain range bound around 1.28. USDCHF: Stabilization just below parity. The Swiss National Bank (SNB) will likely try to stabilize the combined value of

USDCHF and EURCHF. Safe-haven flows have started to leave Switzerland after the French elections. We expect USDCHF to stabilize below parity. EURCHF: Should rise due to a stronger Europe. The SNB continues to defend any appreciation pressure caused by safe-haven trades. This year, we expect the ECB to plan the end of its quantitative easing (QE) program, which should lift the EUR and drive EURCHF above 1.10 and toward 1.14. With tail risks of French elections gone, the CHF becomes increas-ingly attractive for carry trades. EURNOK: Cautiously looking for downside. ECB tapering and the risk of a Norges Bank rate cut should keep EURNOK above 9.00 over the next six months despite a likely oil price rally. Norway’s economy remains torn between solid growth and plummeting inflation. Over 12 months, we expect Norway’s attractive interest rate levels to pull EURNOK down to 8.90. EURSEK: Cheap SEK entry levels. Sweden is economically ahead of the Eurozone. Growth is enviable and inflation is on a long-term uptrend. A less-easy ECB should enable the Riksbank to raise interest rates within the next 12 months, which in turn should lead to a rebound of the undervalued SEK against the EUR.

Foreign exchange forecasts

27.06.17 3M 6M 12M PPP

EURUSD 1.120 1.14 1.16 1.20 1.26

USDJPY 111.6 110 110 110 76

USDCAD 1.325 1.30 1.28 1.25 1.22

AUDUSD 0.761 0.74 0.74 0.72 0.70

GBPUSD 1.273 1.28 1.30 1.36 1.60

NZDUSD 0.731 0.71 0.71 0.71 0.57

USDCHF 0.972 0.96 0.98 0.97 0.96

EURCHF 1.089 1.10 1.14 1.16 1.21

GBPCHF 1.238 1.24 1.28 1.31 1.54

EURJPY 125.0 125 128 132 96

EURGBP 0.879 0.89 0.89 0.88 0.79

EURSEK 9.755 9.30 9.00 8.80 9.07

EURNOK 9.489 9.10 9.10 8.90 9.82

Sources: Reuters EcoWin, IMF, UBS; as of 27 June 2017PPP = Purchasing power parity



Commodities and alternative investmentsCommoditiesGoldWe expect gold prices to trade at around USD 1,250/oz over the coming months, which is slightly lower than current spot prices.Financial market players are underpricing the possibility of a third Federal Reserve rate hike later this year, which could cut the net length of futures held by speculative accounts.That said, rising US real interest rates should be offset by a weaker US dollar and better Asian gold demand.

Wayne Gordon, analyst Giovanni Staunovo, analyst Dominic Schnider, analyst

Gold (6 months)

As of 21 June 2017: USD 1,246/oz Six-month target

House view USD 1,250/oz

Positive scenario USD 1,400/oz

Negative scenario USD 1,100/oz

Crude oilOPEC’s efforts to cut oil inventories and support prices have been stymied as prices trade below USD 50/bbl, the lowest level since last November. This recent sell-off was triggered by frustration on the part of investors over the slow pace of US oil inventory adjustments. Our base case is unchanged: we continue to see larger oil inventory drawdowns, including in the US, in the months to come due to capped OPEC/Russia supply and seasonally improving oil demand. Thus, we expect prices to recover towards USD 60/bbl over the coming months.

Brent crude oil (6 months)

As of 21 June 2017: USD 44.8/bbl) Six-month target

House view USD 60/bbl

Positive scenario USD 65–70/bbl

Negative scenario USD 35–40/bbl

Hedge fundsHedge funds are a useful source of return and stability in a multi-asset portfolio, especially during market volatility. They offer superior risk-return characteristics and access to uncor-related investment opportunities, which provides downside protection and diversification benefits. They have been performing well this year. Heightened stock dispersion, low cross-asset correlation, rising interest rates, moderately higher volatility, and diverging monetary and economic policies are supporting performance. We anticipate returns of 4–6% for the asset class as a whole.

Karim Cherif, Strategist Georg Weidlich, Strategist

UBS House View Investor’s Guide – February 201724

Investment ideas

Preferred investment views

Most preferred: Least preferred:

Equities• Global equities

• Eurozone equities

• Eurozone in style: Value opportunities

• US share buybacks and dividends

• US Smart Beta

• UK equities

Bonds• USD high yield

• Corporate hybrids

• US leveraged loans

• Developed market high grade bonds

• Replacing “well-worn” bonds

• Euro high yield

Foreign exchange• SEK

• EUR

• CAD

• CHF

• USD

• AUD • The peak of the USD cycle

Alternative investments• Navigating rising US rates with hedge funds

Recent upgrades

Recent downgrades


Investment idea

US Smart Beta

Smart beta is one of the fastest growing investment styles. It offers low cost expo-sure to academically supported and his-torically successful traditional risk pre-mium strategies.James Purcell, analyst André Bertolace, analyst

What is smart beta? In equities, smart beta is a semi-passive strategy that takes a regular market capitalization index (like MSCI USA) and tilts the stock composition to exploit investor behavior and to cap-ture traditional risk premiums.

Which portfolio tilts do you recommend? The most frequently cited smart beta factors with some of the best track records are Momentum, Quality, Small capitaliza-tion, Risk-weighted, Value and Yield. All six have over the long term outperformed market capitalization-weighted indices, but individually can suffer periods of underperformance. For US equities, we recommend combining smart beta factors to improve performance.

What has driven historical smart beta outperformance? Each smart beta factor has different drivers – hence the benefit of diversification. For example, Value (made famous by Benja-min Graham and Warren Buffet) exploits investor risk aversion to “cheap” stocks. Momentum has spawned an approx. USD 300 billion hedge fund style and it works because investors have a tendency to buy what has already gone up. Small capi-talization is even simpler – smaller companies are riskier

because they are less diversified, and therefore offer excess returns to compensate.

How has the strategy performed? An equally weighted portfolio of the six most frequently cited US smart beta factors has, on a back test since 2001, outper-formed MSCI USA by 2.6% a year. Furthermore, smart beta investing generally has lower fees than active management.

Recent developments Smart beta ETFs saw their assets grow by more than USD 150 billion in ther first four months of 2017, according to ETFGI. Mutual funds have continued to see investor outflows, amounting to USD 60 billion YTD, according to EPFR. These outflows follow news from ifund that less than 15% of mutual funds benchmarked to the S&P 500 beat this benchmark net of fees in 2016.

Time horizonLong term (>12 months)

Asset classEquities

Initiation date11 May 2017


Investment idea

Time horizonLong term (>12 months)

Asset classEquities

Initiation date11 May 2017

Eurozone in style: Value opportunities

Solid growth and rising inflation provide a favorable background for Eurozone “value” stocks to outperform the wider market, in our view. Bert Jansen, strategist

What is “Value”?Stocks, or sectors, are considered “value” when they trade at below average price to book ratios (P/B) and/or at above aver-age dividend yields. Conversely, stocks trading at above aver-age P/Bs are considered “growth”.

Value tends to outperform during economic expansionHistory shows that value tends to outperform at this stage of the business cycle amid solid growth and rising bond yields. This is because of the cyclical tilt in value, with an overweight in financials and an underweight in consumer staples and IT.

Value moves in tandem with inflation expectationsThere is a tendency for the relative performance of value to move in tandem with German and US government bond yields. Bond yields should be underpinned by the prospect of rising US interest rates and the prospect of ECB tapering early next year, in our view.

RisksThe main risks of value underperforming the market would be a growth scare, falling inflation expectations and/or lower oil prices because of the associated drop in bond yields. Height-ened political uncertainty ahead of the Italian elections may also penalize value because of the potential negative impact on Eurozone banks.

Recent developmentsValue has slightly underperformed recently, due to persistently low bond yields, a flattening US yield curve and the underper-formance of energy, due to lower oil prices.


Investment idea

Long-term investment themes We expect companies that can solve the world’s food supply, healthcare, and urban transportation problems to benefit in the years ahead, given long-term pop-ulation growth, urbanization and aging trends. Mark Haefele, Global Chief Investment Officer WM Philippe G. Müller, Head Global Investment Themes

Prediction is hard, especially about the future. But some pre-dictions are harder than others. We can be more confident about how major trends such as urbanization, population growth and aging will play out:

– The global population is expected to reach almost 10 billion by 2050 from its current 7.3 billion. Most of this growth will occur in low and middle-income countries.

– The UN estimates that by 2030 almost 9% of the world’s population will live in just 41 megacities.

– The number of people aged 60+ will exceed the number under 25 in developed countries by 2030.

Multiple investment themes can benefit from these trends, including agricultural yield. A growing population concen-trated in cities is highly likely to demand more calories. Given the world’s limited landmass and 200,000 more people to feed per day, companies that can improve production effi-ciency – through soil sampling, localized weather forecasting or better use of fertilizer – are likely to become winners, in our view.

Urban infrastructure is another such theme. Anyone who has traveled to the world’s major cities knows the blight of con-gestion and the difference that efficient public transportation systems can make, and will need to make, in alleviating it. In the coming decade we expect Asian nations to spend over USD 200bn on new transportation infrastructure to address urbanization challenges.

And there is healthcare, likely to become a critical issue as more people live into their 70s, 80s and 90s. Scientific advances present opportunities to make a dent in fighting diseases like cancer, a major killer in developed and emerging markets alike.

Recent developments For investors looking for investments in these topics, we believe it makes the most sense, we believe, to focus in a diversified way on companies benefiting from these slow-mov-ing trends rather than hoping for the next moonshot innova-tion. The investment horizon should ideally be through an entire economic cycle.

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India: Distributed by UBS Securities India Private Ltd. 2/F, 2 North Avenue, Maker Maxity, Bandra Kurla Complex, Bandra (East), Mumbai (India) 400051. Phone: +912261556000. SEBI Registration Numbers: NSE (Capital Market Segment): INB230951431, NSE (F&O Segment) INF230951431, BSE (Capital Market Segment) INB010951437. Indonesia: This research or publication is not intended and not prepared for purposes of public offering of securities under the Indonesian Capital Market Law and its implementing regula-tions. Securities mentioned in this material have not been, and will not be, registered under the Indonesian Capital Market Law and Regulations. Israel: UBS Switzerland AG is registered as a Foreign Dealer in coop-eration with UBS Wealth Management Israel Ltd, a wholly owned UBS subsidiary. UBS Wealth Management Israel Ltd is a licensed Portfolio Manager which engages also in Investment Marketing and is regulated by the Israel Securities Authority. This publication shall not replace any investment advice and/or investment marketing provided by a relevant licensee which is adjusted to your personal needs. Italy: This publication is distributed to the clients of UBS Europe SE, Succursale Italia, Via del Vecchio Politecnico, 3 – 20121 Milano, the branch of a German bank duly authorized by the “Bundesanstalt für Finanzdienstleistungsaufsicht” to the provision of financial services and supervised by “Consob”. Jersey: UBS AG, Jersey Branch, is regulated and authorized by the Jersey Financial Services Commission for the conduct of banking, funds and invest-ment business. Where services are provided from outside Jersey, they will not be covered by the Jersey regulatory regime. UBS AG, Jersey Branch is a branch of UBS AG a public company limited by shares, incorporated in Switzerland whose registered offices are at Aeschenvorstadt 1, CH-4051 Basel and Bahnhofstrasse 45, CH 8001 Zurich. UBS AG, Jersey Branch’s principal place business is P.O. Box 350, 24 Union Street, St Helier, Jersey JE4 8UJ. Luxembourg: This publication is not intended to constitute a public offer under Luxembourg law, but might be made available for information purposes to clients of UBS Europe SE, Luxembourg Branch, with place of business at 33A, Avenue J. F. Kennedy, L-1855 Luxembourg. UBS Europe SE, Luxembourg Branch is a branch of UBS Europe SE, a credit institution constituted under German Law in the form of a Societas Europaea, duly authorized by the German Federal Financial Services Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin), and is subject to the joint supervision of BaFin, the central bank of Germany (Deutsche Bundesbank), as well as of the Luxembourg supervisory authority, the Commission de Surveillance du Secteur Financier (the “CSSF”), to which this publication has not been submitted for approval. Mexico: This document has been distributed by UBS Asesores México, S.A. de C.V., a company which is not part of UBS Grupo Financiero, S.A. de C.V. or of any other Mexican financial group and whose obligations are not guaranteed by any third party. UBS Asesores México, S.A. de C.V. does not guarantee any yield whatsoever. Netherlands: This publication is not intended to constitute a public offering or a com-parable solicitation under Dutch law, but might be made available for information purposes to clients of UBS Europe SE, Netherlands branch, a branch of a German bank duly authorized by the “Bundesanstalt für Finanzdienstleistungsaufsicht” for the provision of financial services and supervised by “Autoriteit Financiële Markten” (AFM) in the Netherlands, to which this publication has not been submitted for approval. New Zealand: This notice is distributed to clients of UBS Wealth Management Australia Limited ABN 50 005 311 937 (Holder of Australian Financial Services Licence No. 231127), Chifley Tower, 2 Chifley Square, Sydney, New South Wales, NSW 2000, by UBS Wealth Management Australia Ltd. You are being provided with this UBS publication or material because you have indicated to UBS that you are a client certified as a wholesale investor and/or an eligible investor (“Certified Client”) located in New Zealand. This publication or material is not intended for clients who are not Certified Clients (“Non-Certified Clients”), and if you are a Non-Certified Client you must not rely on this publication or material. If despite this warning you never theless rely on this publication or material, you hereby (i) acknowledge that you may not rely on the content of this publication or material and that any recommendations or opinions in this publication or material are not made or provided to you, and (ii) to the maximum extent permitted by law (a) indemnify UBS and its associates or related entities (and their respective directors, officers, agents and advisers (each a “Relevant Person”) for any loss, damage, liability or claim any of them may incur or suffer as a result of, or in connection with, your unauthorised reliance on this publication or material and (b) waive any rights or remedies you may have against any Relevant Person for (or in respect of) any loss, damage, liability or claim you may incur or suffer as a result of, or in connection with, your unauthorised reliance on this publication or material. Saudi Arabia: This publication has been approved by UBS Saudi Arabia (a subsidiary of UBS AG), a Saudi Arabian closed joint stock company incorporated in the Kingdom of Saudi Arabia under commercial register number 1010257812 having its registered office at Tatweer Towers, P.O. Box 75724, Riyadh 11588, Kingdom of Saudi Arabia. UBS Saudi Arabia is authorized and regulated by the Capital Market Authority of Saudi Arabia. Singapore: Please contact UBS AG Singapore branch, an exempt financial adviser under the Singapore Financial Advisers Act (Cap. 110) and a wholesale bank licensed under the Singapore Banking Act (Cap. 19) regulated by the Monetary Authority of Singapore, in respect of any matters arising from, or in connection with, the analysis or report. Spain: This publication is distributed to its clients by UBS Europe SE, Sucursal en España, with registered office at Calle María de Molina 4, C.P. 28006, Madrid, entity supervised by Banco de España and the Bundesanstalt für Finanzdienstleistungsaufsicht. UBS Europe SE, Sucursal en España is a branch of UBS Europe SE, a credit institution constituted in the form of a Societas Europaea authorized and regulated by the Bundesanstalt für Finanzdienstleistungsaufsich. Sweden: This publication is not intended to constitute a public offer under Swedish law, but might be distributed by UBS Europe SE, Sweden Bankfilial with place of business at Regeringsgatan 38, 11153 Stockholm, Sweden, registered with the Swedish Companies Registration Office under the Reg. No 516406-1011. UBS Europe SE, Sweden Bankfilial is a branch of UBS Europe SE, a credit institution constituted under German Law in the form of a Societas Europaea, duly authorized by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin). UBS Europe SE, Sweden Bankfilial is subject to the joint supervision of the BaFin, the central bank of Germany (Deutsche Bundesbank) and the Swedish financial supervisory authority (Finansinspektionen), to which this document has not been submitted for approval. Taiwan: This material is provided by UBS AG, Taipei Branch in accordance with laws of Taiwan, in agreement with or at the request of clients/prospects. UAE: This research report is not intended to constitute an offer, sale or delivery of shares or other securities under the laws of the United Arab Emirates (UAE). The contents of this report have not been and will not be approved by any authority in the United Arab Emirates including the UAE Central Bank or Dubai Financial Authorities, the Emirates Securities and Commodities Authority, the Dubai Financial Market, the Abu Dhabi Securities market or any other UAE exchange. This material is intended for professional clients only. UBS AG Dubai Branch is regulated by the DFSA in the DIFC. UBS AG/UBS Switzerland AG is not licensed to provide banking services in the UAE by the Central Bank of the UAE nor is it licensed by the UAE Securities and Commodities Authority. The UBS AG Representative Office in Abu Dhabi is licensed by the Central Bank of the UAE to operate a representative office. UK: Approved by UBS AG, authorised and regulated by the Financial Market Supervisory Authority in Switzerland. In the United Kingdom, UBS AG is authorised by the Prudential Regulation Authority and subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request. A member of the London Stock Exchange. This publication is distributed to private clients of UBS London in the UK. Where products or services are provided from outside the UK, they will not be covered by the UK regulatory regime or the Financial Services Compensation Scheme. USA: This document is not intended for distribution into the US, to US persons, or by US-based UBS personnel. UBS Securities LLC is a subsidiary of UBS AG and an affiliate of UBS Financial Services Inc., UBS Financial Services Inc. is a subsidiary of UBS AG.

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