Вы находитесь на странице: 1из 23

Nomura Global Research

2011 Global Outlooks

December 2010

Please read the important disclosures and analyst certifications on pp. 16-22. gl
2011 Global Outlooks - Global Research

Hideyuki Takahashi
Head of Global Research
Senior Corporate Managing Director

Thank you for your interest in Nomura research in 2010. Our global fixed
income and equity research teams have issued global outlook reports for
2011 covering macroeconomics, forex, equity strategy, inflation strategy, and
geopolitics. We have also put together distinctive 2011 outlook reports for
each region. We hope you will find the investment ideas presented in these
products useful. Nomura has endeavored to provide research spanning the
globe, and with the increasing globalization of financial markets, we think
research in tune with changes in global trends will be more important than
ever. We started up US fixed income research operations in 2009 and US
equity research in October 2010, completing our lineup of economic, forex,
equity, fixed income and quantitative analysis research. In 2011, Nomura
aims to have our researchers in each region cooperate across borders to
provide research highlighting new investment opportunities. Expect more
good things from Nomura research in the new year.

Michael Guarnieri
Global Head of Fixed Income Research

Paul Norris
Head of Global Equity Research

|1|
2011 Global Outlooks - Global Research

2011Global Outlooks

2011 Global Economic Outlook


Rocky Road of Recovery
The developed world recovery is set to stay muted due to ongoing de-leveraging,
fiscal restraint and other crisis legacies. With better fundamentals and fewer
aftermath issues, much of the emerging world, led by Asia, is set to keep growing
briskly. Developed-world inflation should stay contained, but we see the ECB and
BOE raising rates way ahead of the Fed and BOJ. We see inflationary pressures
mounting in EM as funds keep flowing in and the authorities intervene to stem rising
currencies. Downside risks: euro area fiscal crisis escalates and spreads; an
investment pull-back in China; EM overheating turns sour. An upside surprise?:
animal spirits stir and crisis-calibrated monetary policies help release pent-up
developed world demand. We anticipate the US dollar consolidating in 2011 against
other major currencies, but weakening against EM currencies.

2011 Global FX Outlook


A global balancing act
We believe the outlook for risky currencies is mildly positive for 2011. This
assessment is based on a consistent historical pattern of returns during similar
points in the cycle. The challenges are: 1) this view is buy-side consensus and we
must be alert to overshooting in price and positioning (and we have a clear ‘value’
focus in our recommendations below); 2) a sustained shift in Fed view (something
we dispute); 3) that the notion of EM economic outperformance may be tested in
2011 (we think markets will look beyond any temporary growth convergence); 4) EM
economic outperformance, butting against continued US political pressures, may
exacerbate tensions around global rebalancing in general and around CNY in
particular; 5) Events in Europe, most critically Spain, threaten to upset risk markets.

2011 Global Equity Strategy Outlook


Reducing the Risk Premium
The 6% risk premium now embedded in global equities seems inappropriately high
to us compared with current volatility and credit spreads, while implied growth rates
look out of line with likely economic and earnings trends. We forecast earnings
growth of 16% in 2011, and a total return of 20%. We expect asset allocators in
developed economies to respond to the valuation gap that now exists between
stocks and bonds. Regionally, we reduce exposure to emerging markets as policy
tightening and an already heavy inflow of capital limit the scope for further asset
price gains. We still expect positive returns in emerging markets. We increase
exposure to Japanese and US equities because we think both regions will likely
continue to benefit from loose monetary policy and the aforementioned asset shift,
while equity valuations in Japan look especially appealing. If stock prices and bond
yields rise, Financials should outperform, while sectors that can grow organically
should also do well.
|2|
2011 Global Outlooks - Global Research

2011 Global Outlooks

2011 Global Fixed Income Strategy Outlook


Four Macro Themes for 2011
One of the golden rules of year-ahead articles is to begin with a healthy dose of
humility. To be fair, many of our core themes in 2010 fared well. We were bullish G4
rates, which at the start of the year was a highly unpopular view. We believed
decoupling between large developed economies and China and its large trading
partners would be a definitive trade in 2010 – and we stuck with the trade despite
the substantial shock to risk appetite during Europe’s debt crisis. We expected
continued loose G4 monetary policy to be supportive of carry trades, especially in
short-end interest rates – our systematic taking of that carry risk was one of the
more underappreciated trades of 2010.

2011 Global Inflation Outlook


Reality Check
We stress test the vision of a world where inflation never occurs again. There is no
need to expect hyper-inflation (and we don’t) to find inflation markets complacent.
Inflation markets have experienced highly distinct periods over the past three years,
from concerns about an inflation spiral up to summer 2008 (remember the inflation
caps?), a more balanced scenario in 2009, moving to deflation concerns in the
middle of 2010 (remember deflation floors?) and recovering somewhat since then.
As of the end of 2010, we appear to be in a transition period. But we see current
valuations as low against fundamentals: despite all the headwinds, the economy is
in a recovery phase, upside pressures are mounting while deflationary forces are
diminishing. So 2011 should be a reasonably strong year for inflation valuations,
something closer to 2009 than 2010.

2011 Global Geopolitics Outlook


Politics Remain Pivotal Even as Risk Aversion Recedes
Politics and policy will continue to be key drivers of market sentiment as
governments move forward in 2011 with exit strategies from the financial crisis.
Generic issues where policy decisions stand to play a particularly important role
include the management of capital inflows and food price inflation. Decisions in the
United States – ranging from fiscal policy to relations with China – stand to be the
main focus of markets. Sovereign debt issues could yet pull market attention back to
the eurozone, although a repeat of the 2010 crisis is, in our view, unlikely. We expect
the coalition government in the United Kingdom to survive potentially difficult local
elections and a referendum set for 5 May 2011. In the Middle East, a number of
issues stand to fuel tensions locally, but we see only a low probability of a major
global shock emanating from the region in the next 12 months, eg, an Israeli military
strike against Iran. We expect China to continue a smooth trajectory towards the
handover of power to the 5th Generation leadership in 2012-13.

|3|
2011 Global Outlooks - Global Research

2011 Regional / Country / Product Outlooks

2011 European Economic Outlook


Finding the balance
Policymakers in Europe need to strike a balance between different policy options.
That potentially leaves even more scope than usual for policy errors. The sovereign
debt crisis is the issue that has dominated the thinking of European policymakers
over 2010 and will no doubt continue to do so in the year ahead. Periphery
governments must continue with their programme of fiscal austerity and structural
reform. Too much tightening runs the risk of economic stagnation or political
opposition which could render it unfeasible, losing the confidence of markets and
official backers; too little and markets lose confidence anyway.

2011 EEMEA Economic Outlook


A Postmodern World
Structural changes, combined with cyclical trends, are leading EEMEA policymakers
to adopt new strategies to cope with shifting global growth, rising inflation and
increased fiscal scrutiny.

Postmodernism: A style and concept characterized by distrust of theories and


ideologies, and by the drawing of attention to conventions, Oxford English
dictionary.

2011 European Equity Strategy Outlook


Reasons for reinvestment
A key reason behind the low multiples attached to European stocks is the lack of
organic growth. However, with high rates of profitability on existing capital, a very
low cost of debt, continued economic recovery and indications that investors are
rewarding more proactive deployment of cash flows – CEOs are likely to increase
organic investment as well as M&A. We forecast a 13% gain for European equities
in 2011. We are biased towards sectors that benefit from rising stock markets and
lower risk premiums, and prefer ‘B to B’ over ‘B to C’. We do not want to ‘pay-up’ for
defensive exposure, therefore we overweight Financials, Tech and Media, and
underweight Utilities, Consumer Staples and Consumer Cyclicals. We downgrade
exposure to both Healthcare and Telecom, while adding to Industrials and
Financials.

|4|
2011 Global Outlooks - Global Research

2011 Regional / Country / Product Outlooks

2011 European Media Outlook


Investment-driven growth, accretive acquisitions and
M&A
2010 has produced some upside surprises from the early cyclical advertising
exposed stocks. There may still be scope for further cyclical gains, but the power to
shock is reduced. Earnings upgrades will have to be generated by internal
investment in organic growth initiatives and accretive acquisitions. Our top picks for
internally generated growth are Reed Elsevier (which has raised investment levels,
in growth markets), Telenet and Eutelsat. As well as making accretive acquisitions,
some media companies could become M&A targets in 2011. BSkyB is our top pick
on M&A grounds and a bid of 800p+ could come as early as Q1.

2011 Asia FX Outlook


Capital flows, growth ebbs
We identify the following key themes driving Asia FX into 2011:
1. Capital inflows into EM and particularly Asia;
2. Asian central banks implementing more capital controls;
3. The impact of capital controls and the risks of an FX policy shift towards allowing
appreciation;
4. CNY appreciation; and
5. Relative Asia growth outperformance, but risks of growth slowing.

2011 Asian interest rate strategy Outlook


History rhymes
We retain a positive view on Asian interest rate markets into 2011. Our view is
underpinned by several factors: 1) an ongoing regional economic slowdown; 2) our
assumption that there will be less pass-through of high commodity prices to
underlying inflation than the market believes; 3) the changed reaction function of
regional central banks who are less inclined to tighten policy into a commodity
price-driven rise in headline inflation than they were in 2007-08; 4) regulatory
changes in the global banking, insurance and pension industries, which are spurring
demand for duration; and 5) a bias among regional policy makers to tighten
monetary conditions via exchange rates rather than interest rates.

|5|
2011 Global Outlooks - Global Research

2011 Regional / Country / Product Outlooks

2011 Asia Pacific Equity Strategy Outlook


Deflation, inflation and the return of the productive
economy
We expect global equities to deliver positive returns as funds move away from
bonds as growth fears subside. Asian equities should benefit from rising domestic
consumption, real negative interest rates, wealth effects and growing bi-lateral trade
between EM. Asian authorities continue to prioritise growth over inflation. We
upgrade Taiwan on better global growth prospects. We expect companies
demonstrating better competitiveness and beneficiaries of productivity gains to
outperform. We highlight them below. We view 2011 as the start of the world's
population shifting from favourable demographics to an aging society. This is also
passing through Asia from Japan, Korea and Taiwan. The world’s aging comes at a
time when China has reached the 'Lewis' point — it has run out of cheap labour.
Wage costs in Asia are rising quickly.

2011 Asia Pacific Quantitative Outlook


Productivity factor for extra juice
Productivity and competitiveness, as well as the ability of companies to manage
costs, sustain capital spending and grow market share, will likely be key return
drivers in 2011. In terms of styles in Asia, we suggest adding exposure to the
composite productivity factor in 2011 and continue to emphasise momentum and
growth over value. We present our suggested quant screen approach in 2011.

2011 China Equity Strategy Outlook


Higher ground
We believe solid earnings growth (21%+ y-y), sufficient liquidity (+18% y-y M2
growth) and undemanding valuations (in line with historical average forward P/E of
12.6x) will support 20%-plus upside in China’s equity market in 2011. Against a
likely backdrop of surging inflation, interest hikes, RMB appreciation, the 12th FYP
and rising global commodity prices, we spell out our sector winners/losers for 2011.
We are Bullish on Financials, Property, Consumer, Oil & gas and Online gaming.
Near-term concern over inflation will weigh on equity market performance. But amid
tightening monetary policy and price control efforts, any share price weakness
should present buying opportunities for long-term gains.

|6|
2011 Global Outlooks - Global Research

2011 Regional / Country / Product Outlooks

2011 Korea Equity Strategy Outlook


Land of the investing calm
We expect Kospi earnings to rise 15% in 2011. Our market year-end target is 2230,
with a fair risk premium of 6.7%. Unlike 2010, Korean equities are entering 2011 with
no signs of overheating. The global economy has avoided a double dip, valuations
remain inexpensive, while liquidity conditions and sentiment are favourable. We
prefer those stocks benefiting from rising commodity prices. BoK rate hikes have
been much slower than expected, despite current account surpluses having reached
a record high, resulting in loose monetary conditions and excess liquidity. A highly
leveraged household, subdued property prices and a strengthening won are
delaying aggressive monetary policy tightening, and has helped sentiment on Korea
equities. We see Korea as is a key beneficiary of emerging market growth.

2011 Singapore Equity Strategy Outlook


Riding the reflation cycle in 2011
We see 10 to 15% market returns in Singapore in 2011, underpinned by attractive
valuations, favourable liquidity conditions and a strong S$. Macro and industry
drivers underpin our positive stance towards banks (attractive valuations),
commodities (food inflation), offshore marine (capex cycle) and commercial
property (cyclical upswing). A strong currency, reasonable valuations and available
policy flexibility (strong fiscal position) support Singapore’s market outlook in 2011.
Moderation in exports due to a stronger S$ is consistent with our view of slower but
more sustainable GDP growth going into 2011. Greater cooperation within ASEAN
to improve trade and FDI across ASEAN, while better Singapore-Malaysia relations
could accelerate cross-border investments.

2011 Malaysia Equity Strategy Outlook


The rally is still young
Most of the characteristics of the super bull market in the early 1990s have
resurfaced, with five key features clearly apparent: economic recovery, liquidity,
sector rotational plays, M&A activity and rising retail participation. The excitement
infused by the ongoing flurry of M&A activity in three different sectors can only be
positive for market sentiment, not to mention for investment banking earnings. Set
against a favourable backdrop of — 1) an ongoing consumption boom, driven by a
younger and wealthier population; 2) improving commodity prices; and 3) ample
liquidity supporting asset reflation evident in the buoyant property market — the bull
market in Malaysia looks set to continue into 2011. Going into the New Year, we
believe the property, palm oil and bank sectors will be the winners.

|7|
2011 Global Outlooks - Global Research

2011 Regional / Country / Product Outlooks

2011 India Equity Strategy Outlook


Under the weather
We expect 2011 to be a year of below-average returns for the market and set our
December 2011 Sensex target at 22,100, implying a potential return of around
12%. We see downside risk to the 20% y-y earnings growth in FY12F now being
priced in by consensus. We believe this, combined with a likely tightening of the
policy environment, could restrict premium expansion for equities. The factors that
could dominate policy are the strength of consumer demand and inflation. Global
commodity prices will likely be key in determining the evolution of inflation,
the current account and policy action.

2011 Japan Equity Strategy Outlook


An end to collective pessimism
1. We think Japanese equities are likely to outperform global equities in 2011.
2. We expect support from improvement in Japanese equities’ relative valuations,
firming earnings momentum, and the BOJ's monetary policy stance.
3. Our end-2011 TOPIX target is 1,100.
4. As key stock-selection themes we see: (1) a steepening of the JGB yield curve;
(2) ongoing rapid growth and rising inflation rates in emerging economies, and
related strengthening of their currencies; (3) Japanese companies’ use of
accumulated cash to increase shareholder returns and fund capital investment
and M&As; and (4) improvement in the inventory-shipment balance in the
electronic parts and devices sector.
5. We recommend overweighting the financials, housing/real estate, machinery, and
electrical machinery/precision equipment sectors.

2011 Japan Economic Outlook


We expect Japan to break out of its lull in 2011, led by
exports
We have made revisions to our economic outlook for FY10–FY12 following the
announcement of second preliminary real GDP estimates for 2010 Q3. Reflecting
retroactive revisions to figures, we have raised our FY10 forecast for real GDP
growth from 2.7% to 3.3%. We maintain our growth forecasts of 1.2% for FY11 and
2.1% for FY12. We expect the Japanese economy to perform weakly in the near
term, but we maintain our outlook for Japan to break out of its economic lull in 2011
H2, led by exports.

|8|
2011 Global Outlooks - Global Research

2011 Regional / Country / Product Outlooks

2011 US Rates Outlook


Calibrating the Rates Compass
The recent movements in the bond market have a similar look and feel to what took
place during December 2009. The market went on to trade better in the first few
weeks of 2010 only to fade up to higher yields. A repeat of that sort of trading
experience could be indeed what is ahead at the start of 2011. However, what is
different now in our minds is that we believe investors will continue to “sell into
strength” whereas in the latter half of 2010 they would “buy into strength.” We
therefore maintain an overall bearish bias and see rates trading at the higher end of
our basline core view of 2.35% to 3.60% in 1H11. This range of 125 bps compares
to the 160 bps of 2010. We believe that as economic variability declines, that overall
rate movements will also contract.

2011 Securitized Products Outlook


Navigating the Maze of Options
Agency MBS had started the year 2010 on a nervous note as MBS spreads were
very tight and the market was worried about the likely widening of spreads once the
Fed concluded its MBS purchase program in 1Q‘10. Although agency MBS spreads
held up pretty well for about 3-4 months after the Fed‘s purchase program was
completed, the spread between the current coupon MBS yield and the average yield
of 5-year and 10-year Treasuries had widened by close to 40bp from the historical
tights hit in July’10.

2011 Non-agency MBS Market Outlook


Review of 2010 and Key Themes for 2011
Outlook for housing and loan modifications: Our base case forecast is that national
home prices will drop 5% in 2011 driven by distressed inventory liquidations and
demographic trends. We present our outlook for modification activity going forward
Mortgage Credit Performance: We present our outlook for liquidation timelines,
severities, credit burnout, prepayments, and overall default and loss projections.
Supply and Demand Technicals: The technical backdrop should remain very strong
for nonagency RMBS given expectations for limited new issue supply and the
potential reinvestment demand from paydowns. Recommended positioning in the
RMBS market for 2011: We maintain an overweight bias on the overall non-agency
sector, and recommend buying recent vintage SSNR option ARM bonds, SSNR dirty
prime/cleaner Alt-A fixed-rate collateral, and longer duration subprime seasoned
mezzanine bonds.

|9|
2011 Global Outlooks - Global Research

2011 Regional / Country / Product Outlooks

2011 GNMA Market Outlook


Navigating the Maze of Options
We think that a combination of the tightening of FHA underwriting standards and
higher insurance fees will lead to a relatively higher percentage of loans being
insured through private mortgage insurance in 2011. Further, the surge in home
sales in the sub-$200k price segment due to tax credits has subsided. This, coupled
with lower conventional to FHA refinancing, should lead to lower GNMA net
issuance in 2011. Overall, we expect gross issuance of GNMA MBS to decline from
$363bn in 2010 to $282bn in 2011 and the net issuance to decline from $182bn in
2010 to $134bn in 2011.

2011 Auto ABS Market Outlook


Our main investment recommendation
Auto ABS was a solid performer in 2010 amid robust issuance and range bound
spreads. Issuance of auto floorplan and subprime ABS saw a significant uptick while
prime loans and leases were down. GM’s purchase of AmeriCredit changes the
captive issuer landscape, and we anticipate the new General Motors Financial to
ramp up its near-prime and lease offerings in 2011. While credit enhancement
decreased compared to 2009, mitigating factors help maintain credit protection, and
we believe bonds are adequately enhanced as structures de-lever quickly. Auto
collateral performance remains strong: early credit metrics show that 2010 vintage is
performing on par with 2009 and better than 2007 and 2008, while recoveries have
benefitted from a strong used car market.

2011 CMBS Market Outlook


Key Themes in the CMBS Market
Property Fundamentals: As the economy slowly recovers, occupancy and rents at
commercial properties are starting to rebound. However, because of the steep drop
in occupancy levels during the previous recession, net operating income will
continue to be weak across all property types through 2011, resulting in a steady
stream of new delinquencies. Commercial Property Prices: Commercial property
prices are likely to continue bouncing along the bottom as more distressed assets hit
the market, while stronger trophy assets garner increased investor interest.
Maturities: Although the $38bn in loans set to mature in 2011 have a weaker profile
than those that matured in 2010, they will benefit from increased credit availability
and investor appetite. We expect that 60% of loans coming due will be able to
refinance, while another 10% will receive a maturity date extension.

| 10 |
2011 Global Outlooks - Global Research

2011 Global Collaboration -Running Themes

The coming surge in food prices


Global Economics and Strategy
Even with lacklustre growth in advanced economies, another multiyear surge in food
prices is likely given rapidly growing demand for food in the developing world,
constraints and uncertainties surrounding food supply and the development of
increasingly powerful feedback loops. We construct a Nomura Food Vulnerability
Index for 80 countries. We also discuss: Macro implications, trading
recommendations from our fixed income and equity strategy teams and specific
stock ideas.

The case for capital controls in Asia


Asia Special Report –Global Economics
Under certain conditions, capital controls can be a legitimate policy response to
surging inflows, but they are no panacea. In this Special Report we draw on a
scorecard approach and our country specialists to assess which countries in the
region are most likely to impose controls. Free-flowing foreign capital is no doubt
beneficial to the world economy, but the experience in emerging economies is that
sudden surges can fuel asset bubbles and, if the inflows suddenly reverse, a high
risk of financial crisis. Asian policymakers raised this concern at the recent
IMF-World Bank annual meetings, and for good reason: the growth rates and
interest rates of Asian economies are now so much higher than those of the
advanced economies.

Machinery China
No barriers
We believe rising labour costs, an improving product mix and gradually increasing
pricing power will bring the limelight back to strong growth in the machinery sector.
We would advise investors to focus on excavators and concrete machinery: these
should be 2011’s fastest growing segments. SANY, Zoomlion and Komatsu are our
top BUYs on this basis. With listed China exposure still limited to HKSE, we also
recommend Japanese suppliers Kawasaki Heavy Industries, Toshiba Machine and
Nabtesco. Possible negative growth in March 2011 could hurt share prices, while
strong volume growth from 2Q and onwards should support share-price
appreciation. We expect rising mechanisation in China as a consequence of labour
cost increases. Chinese construction machinery makers will likely become more
competitive due to strong growth of the domestic market, improving product quality
and technology level.

| 11 |
2011 Global Outlooks - Global Research

2011 Global Collaboration -Running Themes

Global Memory
A new direction
We are in the middle of a megatrend – the rise of tablets and smartphones. While
we think this will dent DRAM demand in the short term, we believe it will benefit the
overall memory industry substantially in terms of earnings for several years to
come. Samsung Electronics is best prepared for this transition, in our view, and our
top pick. We are also BUYers of Hynix and Toshiba. The share prices of memory
names move in tandem with memory prices. With the bottom of the memory market
in sight, we see memory share prices likely to gather momentum soon.

Global Mobile Phone trends


Android momentum drives…
We expect 2011 handset market trends to follow 2010 patterns, but with an
increasing shift to mid-range smartphones, with low-end smartphones key to growth
in 2012. The industry shift is continuing, with Apple and Android likely to hold a 50%
revenue share in 2012, at the expense of Nokia and RIM. In conjunction with a
number of company reports published today (HTC, Motorola, RIM and ZTE), we are
updating our forecasts for the global handset market. On a like-for-like basis, our
handset unit estimates show an increase from 11% to 16% in 2010, from 9% to 11%
in 2011 and from 7% to 10% in 2012. Our handset market revenue forecasts
increase to 13% in 2010, from 9% and to 11% from 9% in 2011. Full details are
shown in the table below.

Smart Grids
IT for electric power networks—a new global
battleground
Smart grid investment is likely to be substantial over a long time frame, but given the
ongoing technology standardization and various types of testing, it could take
several years to get fully under way, except in areas such as advanced metering
infrastructure (AMI). We accordingly see two groups of smart grid-related
companies: those with strong short-term earnings growth potential and those with
attractive longer-term strategies.

| 12 |
2011 Global Outlooks - Global Research

2011 Global Collaboration -Running Themes

LED lighting
Change spurred by demand shift from TVs to lighting
Demand for LEDs used in TVs has not grown as much as previously anticipated, but
we think demand for LEDs used in general lighting has gotten off to a solid start. As
demand shifts to general lighting LEDs, which require high-variety, small-quantity
production, from TV LEDs, which require low-variety, mass production, we think
competitive factors in all facets of the value chain could change. We previously
believed that the LED lighting market would take off in earnest during 2010 through
2011 (refer to Report no. 10-121, LED lighting: The final—and biggest—LED
application coming to prominence, issued 26 March 2010).

Cosmetics in China
C-Bons integration to boost Beiersdorf’s top line and
margins
In this report, we take a close look at the Chinese cosmetics market and try to
assess the relative strengths and weaknesses of the companies under our
coverage. With China expected to become the largest cosmetics market in the world
over the next 15 years (#3 today) and already representing the primary engine of
growth for the sector, we see companies with clear and durable competitive
advantages in the region as well positioned to deliver superior medium-term
earnings growth at a group level. We believe the market has been too focused on
one number – the proportion of total sales derived from China.

China Auto and auto parts


Passengers in front
Auto sales in China are set to expand by 28% to 17.5mn units in 2010F, following
46% growth in 2009. Sales have been underpinned by favourable government
policies, momentum inland, and fundamental demand backed by rising personal
wealth. We believe there is plenty of gas left in the tank. Our forecasts call for 15%
growth in 2011F to 20mn, driven by inland demand (favouring small cars) and
replacement demand (upward shift in product mix). We look for continued
momentum in passenger cars, taking sales to 12.8mn (up 16.4%). Prices should
stay strong in 2011F, with industry utilization remaining above 80% amid a modest
15% forecast rise in capacity to 15mn.

| 13 |
2011 Global Outlooks - Global Research

2011 Global Collaboration -Running Themes

Rail equipment
Rail on a growth track: next stops Russia and India
Both Russia and India have over EUR 200bn of railway development planned,
although financing is not yet fully ringfenced: Mainline, freight and high-speed
development is starting. While both countries are more open markets than China,
we think that localisation and partnerships will be key to accessing these markets.
Solid rail equipment demand forecast by Unife: global growth of 2.3% for 2008-15.
Faster growth of 4% likely for 2010-15. LatAm, Middle East and Africa, and CIS
regions are all forecast to grow fastest at around 4.5% pa to 2015. Europe to grow at
a steady 2.2% pa on the back of signalling, services and fleet renewal demand, Asia
slowing to 1.3% owing to expected completion of China's high-speed build-out.

EUVL poised for mass production


Japanese lithography equipment industry facing
extinction
Extreme ultraviolet lithography (EUVL) is fast emerging as the main candidate to be
the next generation in semiconductor lithography technologies. Even companies
that had previously viewed double patterning technology (DPT), a technique that
allows existing light sources to continue to be used, as the main candidate have
been substantially veering toward EUVL for mass production. While we think EUVL
will be the mainstream mass production technology in five years’ time, we see risks
in basing opinions of companies on changes in lithography technology five years
out.

Global capital goods: demand and competition in China


Japanese/European companies strong in core
parts/services
Chinese manufacturers are expanding production and increasing sophistication.
Sharply rising labor costs have motivated company managers to invest in factory
automation (FA), while the accompanying rise in personal incomes is spurring sales
of autos and electronics. These factors are combining to create a virtuous cycle
beneficial to machinery demand. We expect Japanese and European companies to
maintain their technological edge in core components, especially for FA.

| 14 |
2011 Global Outlooks - Global Research

Please access our Global Research Portal

http://www.nomura.com/research
Nomura’s Global Research Portal is designed as a gateway for our clients to access our research from
equity, fixed income, economics and FX, with each page giving access to both the latest reports and to
those published in the past.

To access Global Research Portal, please contact your local Sales Representative to request
your account created.

| 15 |
2011 Global Outlooks - Global Research

Any Authors named on this report are Research Analysts unless otherwise
indicated
Analyst Certification
Each research analyst identified herein certifies that all of the views expressed in this report by such analyst accurately

reflect his or her personal views about the subject securities and issuers. In addition, each research analyst identified on

the cover page hereof hereby certifies that no part of his or her compensation was, is, or will be, directly or indirectly related

to the specific recommendations or views that he or she has expressed in this research report, nor is it tied to any specific

investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other

Nomura Group company.

Important Disclosures
Conflict-of-interest disclosures
Important disclosures may be accessed through the following website:

http://www.nomura.com/research/pages/disclosures/disclosures.aspx . If you have difficulty with this site or you do not have a

password, please contact your Nomura Securities International, Inc. salesperson (1-877-865-5752) or email

grpsupport@nomura.com for assistance.

Online availability of research and additional conflict-of-interest disclosures


Nomura Japanese Equity Research is available electronically for clients in the US on NOMURA.COM, REUTERS,

BLOOMBERG and THOMSON ONE ANALYTICS. For clients in Europe, Japan and elsewhere in Asia it is available on

NOMURA.COM, REUTERS and BLOOMBERG.

Important disclosures may be accessed through the left hand side of the Nomura Disclosure web page

http://www.nomura.com/research or requested from Nomura Securities International, Inc., on 1-877-865-5752. If you have any

difficulties with the website, please email grpsupport-eu@nomura.com for technical assistance.

The analysts responsible for preparing this report have received compensation based upon various factors including the

firm's total revenues, a portion of which is generated by Investment Banking activities.

Industry Specialists identified in some Nomura International plc research reports are employees within the Firm who are

responsible for the sales and trading effort in the sector for which they have coverage. Industry Specialists do not contribute

in any manner to the content of research report in which their names appear.

Distribution of ratings (Global)


Nomura Global Equity Research has 1878 companies under coverage.

48% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 41% of

companies with this rating are investment banking clients of the Nomura Group*.

37% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 54%

of companies with this rating are investment banking clients of the Nomura Group*.

13% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating;

16% of companies with this rating are investment banking clients of the Nomura Group*.

| 16 |
2011 Global Outlooks - Global Research
As at 30 September 2010.

*The Nomura Group as defined in the Disclaimer section at the end of this report.

Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and

Latin America for ratings published from 27 October 2008


The rating system is a relative system indicating expected performance against a specific benchmark identified for each

individual stock. Analysts may also indicate absolute upside to price target defined as (fair value - current price)/current

price, subject to limited management discretion. In most cases, the fair value will equal the analyst's assessment of the

current intrinsic fair value of the stock using an appropriate valuation methodology such as discounted cash flow or multiple

analysis, etc.

STOCKS

A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months.

A rating of 'Neutral', indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12

months.

A rating of 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months.

A rating of 'RS-Rating Suspended', indicates that the rating and target price have been suspended temporarily to comply

with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory

capacity in a merger or strategic transaction involving the company.

Benchmarks are as follows: United States/Europe: Please see valuation methodologies for explanations of relevant

benchmarks for stocks (accessible through the left hand side of the Nomura Disclosure web page:

http://www.nomura.com/research);Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia, unless otherwise

stated in the valuation methodology.

SECTORS

A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months.

A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12

months.

A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12

months.

Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets

(ex-Asia): MSCI Emerging Markets ex-Asia.

Explanation of Nomura's equity research rating system for Asian companies under coverage ex

Japan published from 30 October 2008 and in Japan from 6 January 2009
STOCKS

Stock recommendations are based on absolute valuation upside (downside), which is defined as (Price Target - Current

Price) / Current Price, subject to limited management discretion. In most cases, the Price Target will equal the analyst's

12-month intrinsic valuation of the stock, based on an appropriate valuation methodology such as discounted cash flow,

multiple analysis, etc.

A 'Buy' recommendation indicates that potential upside is 15% or more.

A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%.

| 17 |
2011 Global Outlooks - Global Research
A 'Reduce' recommendation indicates that potential downside is 5% or more.

A rating of 'RS' or 'Rating Suspended' indicates that the rating and target price have been suspended temporarily to

comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an

advisory capacity in a merger or strategic transaction involving the subject company.

Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage

of the Nomura entity identified in the top banner. Investors should not expect continuing or additional information from

Nomura relating to such securities and/or companies.

SECTORS

A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under

coverage is) a positive absolute recommendation.

A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under

coverage is) a neutral absolute recommendation.

A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under

coverage is) a negative absolute recommendation.

Explanation of Nomura's equity research rating system in Japan published prior to 6 January 2009

(and ratings in Europe, Middle East and Africa, US and Latin America published prior to 27 October

2008)
STOCKS

A rating of '1' or 'Strong buy', indicates that the analyst expects the stock to outperform the Benchmark by 15% or more

over the next six months.

A rating of '2' or 'Buy', indicates that the analyst expects the stock to outperform the Benchmark by 5% or more but less

than 15% over the next six months.

A rating of '3' or 'Neutral', indicates that the analyst expects the stock to either outperform or underperform the Benchmark

by less than 5% over the next six months.

A rating of '4' or 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark by 5% or more but

less than 15% over the next six months.

A rating of '5' or 'Sell', indicates that the analyst expects the stock to underperform the Benchmark by 15% or more over the

next six months.

Stocks labeled 'Not rated' or shown as 'No rating' are not in Nomura's regular research coverage. Nomura might not

publish additional research reports concerning this company, and it undertakes no obligation to update the analysis,

estimates, projections, conclusions or other information contained herein.

SECTORS

A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next six months.

A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next six

months.

A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next six

months.

Benchmarks are as follows: Japan: TOPIX; United States: S&P 500, MSCI World Technology Hardware & Equipment;

Europe, by sector - Hardware/Semiconductors: FTSE W Europe IT Hardware; Telecoms: FTSE W Europe Business

| 18 |
2011 Global Outlooks - Global Research
Services; Business Services: FTSE W Europe; Auto & Components: FTSE W Europe Auto & Parts; Communications

equipment: FTSE W Europe IT Hardware; Ecology Focus: Bloomberg World Energy Alternate Sources; Global Emerging

Markets: MSCI Emerging Markets ex-Asia.

Explanation of Nomura's equity research rating system for Asian companies under coverage ex

Japan published prior to 30 October 2008


STOCKS

Stock recommendations are based on absolute valuation upside (downside), which is defined as (Fair Value - Current

Price)/Current Price, subject to limited management discretion. In most cases, the Fair Value will equal the analyst's

assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as Discounted

Cash Flow or Multiple analysis etc. However, if the analyst doesn't think the market will revalue the stock over the specified

time horizon due to a lack of events or catalysts, then the fair value may differ from the intrinsic fair value. In most cases,

therefore, our recommendation is an assessment of the difference between current market price and our estimate of

current intrinsic fair value. Recommendations are set with a 6-12 month horizon unless specified otherwise. Accordingly,

within this horizon, price volatility may cause the actual upside or downside based on the prevailing market price to differ

from the upside or downside implied by the recommendation.

A 'Strong buy' recommendation indicates that upside is more than 20%.

A 'Buy' recommendation indicates that upside is between 10% and 20%.

A 'Neutral' recommendation indicates that upside or downside is less than 10%.

A 'Reduce' recommendation indicates that downside is between 10% and 20%.

A 'Sell' recommendation indicates that downside is more than 20%.

SECTORS

A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under

coverage is) a positive absolute recommendation.

A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under

coverage is) a neutral absolute recommendation.

A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under

coverage is) a negative absolute recommendation.

Price targets
Price targets, if discussed, reflect in part the analyst's estimates for the company's earnings. The achievement of any price

target may be impeded by general market and macroeconomic trends, and by other risks related to the company or the

market, and may not occur if the company's earnings differ from estimates.

Disclaimers
This publication contains material that has been prepared by the Nomura entity identified on the banner at the top or the

bottom of page 1 herein and, if applicable, with the contributions of one or more Nomura entities whose employees and

their respective affiliations are specified on page 1 herein or elsewhere identified in the publication. Affiliates and

subsidiaries of Nomura Holdings, Inc. (collectively, the 'Nomura Group'), include: Nomura Securities Co., Ltd. ('NSC') Tokyo,

Japan; Nomura International plc, United Kingdom; Nomura Securities International, Inc. ('NSI'), New York, NY; Nomura

International (Hong Kong) Ltd., Hong Kong; Nomura Financial Investment (Korea) Co., Ltd., Korea (Information on Nomura

| 19 |
2011 Global Outlooks - Global Research
analysts registered with the Korea Financial Investment Association ('KOFIA') can be found on the KOFIA Intranet at

http://dis.kofia.or.kr ); Nomura Singapore Ltd., Singapore (Registration number 197201440E, regulated by the Monetary

Authority of Singapore); Nomura Securities Singapore Pte Ltd., Singapore (Registration number 198702521E, regulated by

the Monetary Authority of Singapore); Capital Nomura Securities Public Company Limited; Nomura Australia Ltd., Australia

(ABN 48 003 032 513), regulated by the Australian Securities and Investment Commission and holder of an Australian

financial services licence number 246412; P.T. Nomura Indonesia, Indonesia; Nomura Securities Malaysia Sdn. Bhd.,

Malaysia; Nomura International (Hong Kong) Ltd., Taipei Branch, Taiwan; Nomura Financial Advisory and Securities (India)

Private Limited, Mumbai, India (Registered Address: Ceejay House, Level 11, Plot F, Shivsagar Estate, Dr. Annie Besant

Road, Worli, Mumbai- 400 018, India; SEBI Registration No: BSE INB011299030, NSE INB231299034, INF231299034,

INE 231299034).

THIS MATERIAL IS: (I) FOR YOUR PRIVATE INFORMATION, AND WE ARE NOT SOLICITING ANY ACTION BASED

UPON IT; (II) NOT TO BE CONSTRUED AS AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY

SECURITY IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE ILLEGAL; AND (III) BASED

UPON INFORMATION THAT WE CONSIDER RELIABLE.

NOMURA GROUP DOES NOT WARRANT OR REPRESENT THAT THE PUBLICATION IS ACCURATE, COMPLETE,

RELIABLE, FIT FOR ANY PARTICULAR PURPOSE OR MERCHANTABLE AND DOES NOT ACCEPT LIABILITY FOR

ANY ACT (OR DECISION NOT TO ACT) RESULTING FROM USE OF THIS PUBLICATION AND RELATED DATA. TO

THE MAXIMUM EXTENT PERMISSIBLE ALL WARRANTIES AND OTHER ASSURANCES BY NOMURA GROUP ARE

HEREBY EXCLUDED AND NOMURA GROUP SHALL HAVE NO LIABILITY FOR THE USE, MISUSE, OR

DISTRIBUTION OF THIS INFORMATION.

Opinions expressed are current opinions as of the original publication date appearing on this material only and the

information, including the opinions contained herein, are subject to change without notice. Nomura is under no duty to

update this publication. If and as applicable, NSI's investment banking relationships, investment banking and

non-investment banking compensation and securities ownership (identified in this report as 'Disclosures Required in the

United States'), if any, are specified in disclaimers and related disclosures in this report. In addition, other members of the

Nomura Group may from time to time perform investment banking or other services (including acting as advisor, manager

or lender) for, or solicit investment banking or other business from, companies mentioned herein. Further, the Nomura

Group, and/or its officers, directors and employees, including persons, without limitation, involved in the preparation or

issuance of this material may, to the extent permitted by applicable law and/or regulation, have long or short positions in,

and buy or sell, the securities (including ownership by NSI, referenced above), or derivatives (including options) thereof, of

companies mentioned herein, or related securities or derivatives. In addition, the Nomura Group, excluding NSI, may act as

a market maker and principal, willing to buy and sell certain of the securities of companies mentioned herein. Further, the

Nomura Group may buy and sell certain of the securities of companies mentioned herein, as agent for its clients.

Investors should consider this report as only a single factor in making their investment decision and, as such, the report

should not be viewed as identifying or suggesting all risks, direct or indirect, that may be associated with any investment

decision. Please see the further disclaimers in the disclosure information on companies covered by Nomura analysts

available at www.nomura.com/research under the 'Disclosure' tab. Nomura Group produces a number of different types of

research product including, among others, fundamental analysis, quantitative analysis and short term trading ideas;

recommendations contained in one type of research product may differ from recommendations contained in other types of

| 20 |
2011 Global Outlooks - Global Research
research product, whether as a result of differing time horizons, methodologies or otherwise; it is possible that individual

employees of Nomura may have different perspectives to this publication.

NSC and other non-US members of the Nomura Group (i.e. excluding NSI), their officers, directors and employees may, to

the extent it relates to non-US issuers and is permitted by applicable law, have acted upon or used this material prior to, or

immediately following, its publication.

Foreign-currency-denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on

the value or price of, or income derived from, the investment. In addition, investors in securities such as ADRs, the values

of which are influenced by foreign currencies, effectively assume currency risk.

The securities described herein may not have been registered under the US Securities Act of 1933, and, in such case, may

not be offered or sold in the United States or to US persons unless they have been registered under such Act, or except in

compliance with an exemption from the registration requirements of such Act. Unless governing law permits otherwise, you

must contact a Nomura entity in your home jurisdiction if you want to use our services in effecting a transaction in the

securities mentioned in this material.

This publication has been approved for distribution in the United Kingdom and European Union as investment research by

Nomura International plc ('NIPlc'), which is authorized and regulated by the UK Financial Services Authority ('FSA') and is a

member of the London Stock Exchange. It does not constitute a personal recommendation, as defined by the FSA, or take

into account the particular investment objectives, financial situations, or needs of individual investors. It is intended only for

investors who are 'eligible counterparties' or 'professional clients' as defined by the FSA, and may not, therefore, be

redistributed to retail clients as defined by the FSA. This publication may be distributed in Germany via Nomura Bank

(Deutschland) GmbH, which is authorized and regulated in Germany by the Federal Financial Supervisory Authority

('BaFin'). This publication has been approved by Nomura International (Hong Kong) Ltd. ('NIHK'), which is regulated by the

Hong Kong Securities and Futures Commission, for distribution in Hong Kong by NIHK. This publication has been

approved for distribution in Australia by Nomura Australia Ltd, which is authorized and regulated in Australia by the

Australian Securities and Investment Commission ('ASIC'). This publication has also been approved for distribution in

Malaysia by Nomura Securities Malaysia Sdn Bhd. In Singapore, this publication has been distributed by Nomura

Singapore Limited ('NSL') and/or Nomura Securities Singapore Pte Ltd ('NSS'). NSL and NSS accepts legal responsibility

for the content of this publication, where it concerns securities, futures and foreign exchange, issued by their foreign

affiliates in respect of recipients who are not accredited, expert or institutional investors as defined by the Securities and

Futures Act (Chapter 289). Recipients of this publication should contact NSL or NSS (as the case may be) in respect of

matters arising from, or in connection with, this publication. Unless prohibited by the provisions of Regulation S of the U.S.

Securities Act of 1933, this material is distributed in the United States, by Nomura Securities International, Inc., a

US-registered broker-dealer, which accepts responsibility for its contents in accordance with the provisions of Rule 15a-6,

under the US Securities Exchange Act of 1934.

This publication has not been approved for distribution in the Kingdom of Saudi Arabia or to clients other than 'professional

clients' in the United Arab Emirates by Nomura Saudi Arabia, Nomura International plc or any other member of the Nomura

Group, as the case may be. Neither this publication nor any copy thereof may be taken or transmitted or distributed, directly

or indirectly, by any person other than those authorised to do so into the Kingdom of Saudi Arabia or in the United Arab

Emirates or to any person located in the Kingdom of Saudi Arabia or to clients other than 'professional clients' in the United

Arab Emirates. By accepting to receive this publication, you represent that you are not located in the Kingdom of Saudi

Arabia or that you are a 'professional client' in the United Arab Emirates and agree to comply with these restrictions. Any

failure to comply with these restrictions may constitute a violation of the laws of the Kingdom of Saudi Arabia or the United

Arab Emirates.

| 21 |
2011 Global Outlooks - Global Research
No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means; or (ii) redistributed without

the prior written consent of the Nomura Group member identified in the banner on page 1 of this report. Further information

on any of the securities mentioned herein may be obtained upon request. If this publication has been distributed by

electronic transmission, such as e-mail, then such transmission cannot be guaranteed to be secure or error-free as

information could be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. The sender

therefore does not accept liability for any errors or omissions in the contents of this publication, which may arise as a result

of electronic transmission. If verification is required, please request a hard-copy version.

Additional information available upon request


NIPlc and other Nomura Group entities manage conflicts identified through the following: their Chinese Wall, confidentiality

and independence policies, maintenance of a Restricted List and a Watch List, personal account dealing rules, policies and

procedures for managing conflicts of interest arising from the allocation and pricing of securities and impartial investment

research and disclosure to clients via client documentation.

Disclosure information is available at the Nomura Disclosure web page:

http://www.nomura.com/research/pages/disclosures/disclosures.aspx

| 22 |