Credis Suisse Accumulate commodity equities on macro recovery

􀂃 Strong global IP data and positive macro leading indicators underline healthy
commodity demand outlook.

􀂃 China commodity demand outlook remains robust, driven by favorable policy actions
towards domestic consumption and urbanization.

􀂃 Restocking in developed markets supports the second leg of a commodity price hike.

􀂃 Favor cyclical basic materials and energy over precious metals, given the increasing economic activity.

After a strong rebound last year, commodities prices consolidated in January before trending higher again in February and March. This gives us an indication that the macro fundamentals are indeed improving. However, commodity equities did not follow suit and are showing signs of peakingmout relative to the broader equity market and the CRB Indexm, as investors have turned cautious on the commodity price sustainability at such high levels and due to the uncertain macro outlook, or they are simply shaken by the ongoing financial problems in Greece and the possibility of it spreading to other European countries. On the contrary, our top-down and bottom-up analysis continues to suggest a robust commodity demand outlook, driven by increasing economic activity during the recovery, while restocking in developed markets should emerge as a new catalyst to commodity demand. Thus, we see a stronger earnings growth outlook for commodity-related companies. Within commodities, we maintain our preference for basic materials and energy over precious metals, as the former is more geared to economic activity.

Key Points:
Macroeconomic backdrop remains supportive of commodity markets, Robust H2 2010 demand outlook, despite moderation after strong growth in 2009
Bottom-up: Robust commodity demand in China
Base metals: Warehouse inventories have started to fall amid signs of restocking activity, Copper (Cu): Upside price risk on tight supply, Aluminum (Al): Weak fundamentals cap price upside, Steel: Rising steel prices should offset increase in raw materials cost, Iron ore: Pricing looks set to rise substantially
Energy: Oil prices are forming a new range above the USD 80 level, A gradual tightening of the global oil market balance should lead to higher oil prices
Coal: Rising Asian demand should bode well for prices in the Pacific Basin
Precious metals: Rising real interest rates should cap the upside for gold

Stock selection basis: Favor energy, bulk commodity, copper and steel stocks