ab

Chief Investment Officer Wealth Management

December 2013

CIO Monthly Letter

Bubble thoughts
Kids love blowing bubbles. A breath, a puff, and a shiny sphere floats off, defying gravity. And when the bubble bursts, laughter usually follows. Investors tend to like bubbles too until they pop. Tears, not laughter, are the likely reaction. On November 25, 2008, the US Federal Reserve announced that it would initiate a program to purchase the direct obligations of housingrelated government-sponsored enterprises. With this dreary sentence what has since become known as quantitative easing, or QE, began. In the five years since, QE has become a routine part of the global economic landscape. Other developed countries have emulated it by launching similar programs, all of which have helped cut borrowing costs and supported asset prices (see Fig. 1). Indeed, in that five-year time frame, global equities have returned more than 15% on an annualized basis, Treasuries close to 5%, and US high yield credit more than 20%. Investors holding cash havent done quite so well, but even cash has not been disastrous. Despite repeated scares that so much money printing could lead to inflation, prices have remained well contained. In short, it has been a highly favorable period for investment returns. Yet it has, at the same time, been a distinctly mediocre period for the global economy. This disconnect is now leading some to question whether QEs reflation of asset prices represents the creation of a bubble. There are some worrying signs. Authorities seem to be targeting positive asset price returns, regardless of fundamentals. Bearish sentiment is now at levels that have previously indicated investor complacency. And stock markets seem almost indifferent to whether fundamental economic data is good or bad. Ultimately, all that long-term investors should truly care about is whether such sentiment has pushed valuations beyond reasonable levels. And by most measures it does not appear as though we are in bubble territory. Whether we look at simple ratios of prices to earnings in equity markets, or adjust for the business cycle using cyclically adjusted earnings yields, we get a similar story. Share valuations today are fair to slightly high. This means there may be scope for earnings growth to drive price appreciation, but investors should not expect a repeat of the 15%+ annualized returns enjoyed over the past five years. Annual returns of 7%-8% are more likely. Equally, it is highly unlikely that high yield credit will continue to produce double-digit percentage returns. Of course, relative to government bonds, both remain attractive. Equities cyclically adjusted earnings yield of 5.4% compares favorably with real government bond yields. In our view, the extra yield, or spread, on high yield debt compared with sovereign equivalents still more than offsets the risks at this stage in the business cycle. Bottom line, we do not believe investors need to fear that we are in the midst of a dangerous bubble in risk assets. Questions Early last week, I spoke on a panel at the UBS European Conference alongside leading former central bankers Adam Posen of the Bank of England (BoE), Philipp Hildebrand of the

Alexander S. Friedman Global CIO UBS WM

This report has been prepared by UBS AG. Please see important disclaimers and disclosures at the end of the document. Past performance is no indication of future performance. The market prices provided are closing prices on the respective principal stock exchange. This applies to all performance charts and tables in this publication.

CIO Monthly Letter

Swiss National Bank (SNB), and Lorenzo Bini Smaghi of the European Central Bank (ECB) on this very topic: has quantitative easing inflated a bubble? It is a topic I have been asked about with increasing frequency in recent weeks, particularly since the Feds decision to extend its quantitative easing program. There are conditions in place to suggest that bubbles could form. Some governments are targeting positive asset price returns. The Fed closely monitors the health of the credit market and so implicitly targets mortgage and credit spreads. And it even revealed the back-up in mortgage rates as a reason for maintaining its pace of QE in September. Japan's economics minister had a go at equity strategy earlier in the year, setting a two-month target return of 17% on the Nikkei 225. Meanwhile, ECB President Mario Draghis do what it takes policy in the Eurozone implicitly guarantees positive returns on short-dated peripheral government bonds. This powerful backing is clearly changing investor behavior. Markets have rallied in response to both of the past two US non-farm payroll reports, despite one materially missing expectations and the other beating them. Good news is still good news, but now bad news means an increased likelihood of more QE, which is taken as good news. The onemonth average level of bearish sentiment, as measured by the American Association of Individual Investors, is at levels last seen in early 2011 and early 2012. On both occasions this represented complacency (see Fig. 2). Meanwhile, while demand is clearly buoyant, equity supply has also increased in recent months. After an increase in initial public offerings (IPOs), companies in the US, the Eurozone, Japan, and the UK are, in aggregate, now selling more stock than they are buying. This raises the question of whether investors optimistic outlook is shared by the companies in which they are investing.

Lets remember that companies have historically demonstrated no greater knowledge about the future than investors. In fact, it has often been the case that market peaks are instead marked by mergers and acquisitions and share buybacks rather than IPOs. Ultimately, the key for long-term investors should be valuation alone. Government bonds very overvalued Financial theory usually stipulates that measures of valuation begin with the risk free rate on a long-term US Treasury bond. This risk-free rate is usually used as a starting point when calculating the expected return on dollar-denominated equities. In her testimony to the Senate Banking Committee, Janet Yellen used the equity risk premium that is, the valuation of equities relative to government bonds to explain why there is no bubble in stock prices. But with base interest rates at record low levels, and with QE helping to push down long-term bond yields, one could argue that government bonds themselves are highly overvalued. Prices have declined this year, but 10-year yields remain just 1 percentage point from their all-time lows (see Fig. 3). Therefore, while the equity risk premium helps us understand the relative attractiveness of equities, it doesnt necessarily prove there is no bubble. It could merely show that equities are in a smaller bubble than government bonds are. Equity valuations fair to slightly high Excluding those measures of equity valuation that involve the risk-free rate, we are effectively left with comparing price-to-earnings (P/E) or price-to-book multiples relative to historical levels. Regionally, the largest two global markets trade in line with long-run averages. US stocks trade at 16.5x their

Fig. 1: QE has supported asset prices

Selected asset class returns since 25 November 2008 (annualized, %) 25 20% 20 15 10 5 0 US HY bonds MSCI World US IG bonds US 710 year Commodities government bonds 10% 4% 1% 16%

Fig. 2: Bearish sentiment at potentially complacent levels

AAII Bearish Sentiment Index (4-week average) 70 60 50 40 30 20 10 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: Bloomberg, as of 20 November 2013

Source: Bloomberg, UBS, as of 21 November 2013

UBS Chief Investment Office December 2013

CIO Monthly Letter

trailing earnings versus their 25-year average of 16.9x, and the Eurozone trades at 14.8x versus its 25-year average of 14.7x. Emerging markets trade at 11.7x, or a 23% discount. But with global net profit margins higher than average, and with corporate profits as a percentage of GDP at record highs, one could argue that the earnings themselves are in a bubble. However, this is likely not the case. The figures can be explained by two secular trends. The declining cost of capital has enabled companies to materially lower interest costs for the foreseeable future, and globalization has opened up new earnings streams as well as enabling diversification into lower tax jurisdictions. Meanwhile, operating profit margins still have scope for expansion, particularly in the Eurozone. And with commodity prices flat to declining, and unemployment still elevated, it is hard to pinpoint the specific factors that could push margins lower (see Fig. 4). Nonetheless, in investing it usually pays to be conservative in our assumptions. Therefore, we can also consider valuation metrics that seek to adjust for our position in the business cycle. Earlier this month, Robert Shiller was awarded the Nobel Prize for economics for his work on asset price valuation. His fabled measure, the Shiller P/E, attempts to adjust for the business cycle by taking a simple average of the prior 10 years of earnings. This metric gained notoriety after Shillers book, Irrational Exuberance, used the metric to show equity markets were overvalued. It was published in March 2000, the very month the dotcom bubble began to burst. Today it stands at 24.8x. This is nowhere near the level of 43.2x reached back in March 2000, but has nonetheless led to some alarm: current levels are just over 50% higher than the average since the data series began in the late 19th century (see Fig. 5).

But the measure is not without question due to the high volatility of earnings over the past decade. And given that business cycles are not always precisely 10 years in length, artificial averages can misrepresent where the midpoint of the business cycle lies. Furthermore, comparing valuations to an average encompassing more than a century of data can leave us missing structural changes in demographics, inflation, liquidity, volatility, or other factors that could affect the fair valuation of equities. For example, the Shiller P/E has only traded below its long-run average for nine months in the past 20 years. It is of course possible that the market has been almost perpetually overvalued, but it seems unlikely. Attempting to adjust for these issues, we prefer to use a cyclically adjusted earnings yield and compare it over a more modern timeframe. We do this by using a 20-year regression to estimate where earnings would be in the middle of a business cycle. The net result is a cyclically adjusted earnings yield of 5.4%. This represents about a 10% discount to the 20-year median of 4.9% or, put another way, a 20% premium relative to a post-gold standard median of 6.4% (see Fig. 6). The bottom line is that, after a significant rally over the past five years, equity valuations are probably now fair to slightly high. Investors should therefore not expect a repeat of the multiple expansion that led to the returns of recent years. But valuation is not yet at levels where mean reversion is likely to detract from returns. Scope remains for price appreciation driven by earnings growth. Cash awaiting inflation With equities trading at or above long-run average valuations and bonds far above them, cash is coming back into favor among some investors. A curious feature of the recent Bank of America Merrill Lynch (BofA) fund manager survey was that cash balances are, at 4.6%, unusually high given

Fig. 3: Government bond yields close to record lows

10-year government bond yield (%) 10 8 6 4 2 0 1989 1992 1995 1998 2001 2004 2007 2010 2013

Fig. 4: Operating prot margins in line with averages

Global prot margins (%)

14 12 10 8 6 4 2 0
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

US Germany Source: Bloomberg, UBS, as of 21 November 2013

Net prot margin EBIT margin Source: Thomson Reuters, UBS, as of 21 November 2013

UBS Chief Investment Office December 2013

CIO Monthly Letter

the recent strong performance of equity markets. And in a trend I first commented on in my July CIO Monthly Letter, overnight cash rates continue to decline. Cashs greatest enemy, inflation, remains elusive (see Fig. 7). All across the developed world over the past month, inflation has come in lower than expected. Notably, in the Eurozone the surprise 0.7% year-over-year reading forced the ECB into a refinancing rate cut. Even incorporating the impact of this, Draghi expects a prolonged period of low inflation. This might seem odd given the sheer amount of liquidity that has been added to the global financial system over the past five years: since Lehman Brothers collapsed the combined balance sheets of the G7 central banks have tripled in size. But with commodity prices flat to declining, economies operating below full output, and high unemployment rates suggesting little prospect of wage increases, we remain at too early a stage in the economic expansion for inflation to represent a threat. And, more structurally, despite the very aggressive reflationary bias of central banks, other macroeconomic policies have been distinctly deflationary. For example, in the Eurozone, rather than attempting to boost domestic demand in surplus countries to help spur exports in deficit countries, the region has instead attempted to rebalance through austerity and by suppressing demand in the periphery. Indeed, this month, the US Department of the Treasury blamed Germanys China-topping current account surplus for causing a deflationary bias for the euro area, as well as for the world economy. Whatever the causes, investors clearly do not consider inflation to be a problem. The aforementioned BofA survey showed that only around 2% of fund managers regard inflation as the biggest tail risk in the year ahead. In 2013, traditional inflation hedges have been among the worst-performing assets; 10-year Treasury inflation-protected securities are down 12%, agricultural commodities 14%, and gold 23%.

But we have to remember that governments still need inflation as a last resort. Governments have effectively just three ways of raising revenue: through taxation, borrowing, or printing money. The recent upsurge in labor activism, poor economic data, and Standard & Poors recent downgrade of Frances credit rating demonstrate the limits of what high taxation can achieve. And the Eurozone crisis of 2011, as well as the recent battle in the US Congress, illustrate the problems excess borrowing can bring about. So while inflation remains muted for now, it would be unwise to believe that inflation is dead. History has taught us that it is the last resort governments can draw upon, when they deem it necessary, to produce nominal growth. And in a world of lower returns from financial assets, even moderate inflation could act as a significant drag on returns for medium-term investors. Conclusion Valuations of equities and high yield credit are not at levels likely to cause mean reversion to detract from returns. Earnings growth and low default rates should support positive returns in both asset classes, which remain more attractive than cash and far more compelling than government bonds, whose real returns are likely to be negative. Nonetheless, investors should not expect a repeat of the financial asset performance seen in the past five years, especially as monetary policy normalizes in the years ahead. And in a world of lower returns, higher rates of inflation could further cut into them. Investors will need to seek alternative sources of return, including private markets, and take a more tactical approach to asset allocation. Asset allocation We are making key changes to our tactical asset allocation this month. First, we are adding a short position in the Japanese yen, relative to the US dollar, to replace a long position in

Fig. 5: Shiller PE suggests equity overvaluation

Shiller PE (price relative to 10-year average earnings) 45 40 35 30 25 20 15 10 5 0 1881 1888 1896 1904 1912 1920 1928 1936 1944 1952 1960 1968 1976 1983 1991 1997 2007

Fig. 6: Cyclically-adjusted earnings yield in line with recent mean

Cyclically-adjusted earnings yield (estimated trend earnings relative to price) 18 15 12 9 6 3 0 1971 1974 1977 1979 1982 1985 1988 1990 1993 1996 1999 2001 2004 2007 2010 2012

CAEY 20-year average Post-gold standard average Source: MSCI, Irrational Exuberance, UBS, as of 21 November 2013

Source: Irrational Exuberance, UBS, as of 21 November 2013

UBS Chief Investment Office December 2013

CIO Monthly Letter

Japanese equities. Koichi Hamada, special economic advisor to Prime Minister Shinzo Abe, said it all last week, awarding an A+ grade to the first arrow of Abenomics (monetary expansion), but a D grade to the third arrow (structural reform). We concur with Hamadas assessment and believe that Japan could be forced to fire its more successful first arrow once again in the first half of 2014, particularly if the planned consumption tax hike weighs on economic growth. Further monetary expansion will likely weaken the yen relative to the US dollar. While this should translate into earnings upgrades for Japanese companies, an environment in which structural reform is not forthcoming or economic progress stalls may cause the price of Japanese equities to lag the decline in the yen. This is not to say we believe Japanese equities will underperform in absolute terms or relative to global equities. Instead, given the likely developments in Japanese policy, we consider a short yen position to offer a better risk-reward tradeoff than a long position in equities. Second, we are adding to our position in Eurozone equities in light of the recent ECB interest rate cut, which ensures that the central bank will continue to support financial conditions. The Eurozone is also a key beneficiary of an increasingly supportive global growth environment due to its large cyclical exposure (see Fig. 8). With corporate margins three percentage points below their 2011 peak, there is significant scope for earnings-led outperformance. Within our regional preferences we are upgrading Chinese equities to overweight after the proposed reforms from the Third Plenary Sessions exceeded the markets expectations. Given that China currently trades at more than a 20% discount to Asia ex-Japan equities, we see scope for this valuation discount to at least normalize back to the five-year historical discount of 11% on improved sentiment.

We are also maintaining our British pound overweight and our underweight in UK equities. Our divergent views on these two UK assets have raised questions from clients this month. To be clear,the UKs economic fundamentalsare strong retail sales have risen significantly in recent months as increases in house price have generated a wealth effect, and the service sector is, according to the PMI reading, the strongest its been since 1997. This, in conjunction with the Bank of Englands unemployment forecast revision, has helped the pound to outperform our underweight in the Swiss franc by 1% in November a move we believe has further to go. However, this does not translate into equity outperformance; our quantitative modeling suggests that domestic economic conditions explain just 4% of UK market relative performance since 75% of earnings are generated outside of the country. And the aforementioned strength in the pound presents a headwind for equity earnings. We therefore remain underweight UK equities. Thank you, as always, for reading this letter. If you have any questions or different points of view and would like to share them, please feel free to contact me directly. All input is appreciated. My email is alexander.friedman@ubs.com. Sincerely,

Alexander S. Friedman Global Chief Investment Officer Wealth Management 21 November 2013

Fig. 7: Ination remains elusive

Eurozone CPI (%, yoy) 5 4 3 2 1 0 1 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13

Fig. 8: Developed markets lead the global recovery

GDP weighted Manufacturing PMIs 60 55 50 45 40 35 30 2007 2008 2009 2010 2011 2012 2013

BRIC Big 4 (US, UK, Eurozone, Japan) Source: Bloomberg, as of 21 November 2013

Source: Bloomberg, as of 21 November 2013

UBS Chief Investment Office December 2013

UBS CIO WM Research is published by Wealth Management and retail & Corporate and Wealth Management Americas, Business Divisions of UBS AG (UBS) or an affiliate thereof. In certain countries UBS AG is referred to as UBS SA. This publication is for your information only and is not intended as an offer, or a solicitation of an offer, to buy or sell any investment or other specific product. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. Certain services and products are subject to legal restrictions and cannot be offered worldwide on an unrestricted basis and/or may not be eligible for sale to all investors. All information and opinions expressed in this document were obtained from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to its accuracy or completeness (other than disclosures relating to UBS and its affiliates). All information and opinions as well as any prices indicated are current as of the date of this report, and are subject to change without notice. Opinions expressed herein may differ or be contrary to those expressed by other business areas or divisions of UBS as a result of using different assumptions and/or criteria. At any time UBS AG and other companies in the UBS group (or employees thereof) may have a long or short position, or deal as principal or agent, in relevant securities or provide advisory or other services to the issuer of relevant securities or to a company connected with an issuer. Some investments may not be readily realizable since the market in the securities is illiquid and therefore valuing the investment and identifying the risk to which you are exposed may be difficult to quantify. UBS relies on information barriers to control the flow of information contained in one or more areas within UBS, into other areas, units, divisions or affiliates of UBS. Futures and options trading is considered risky. Past performance of an investment is no guarantee for its future performance. Some investments may be subject to sudden and large falls in value and on realization you may receive back less than you invested or may be required to pay more. Changes in FX rates may have an adverse effect on the price, value or income of an investment. We are of necessity unable to take into account the particular investment objectives, financial situation and needs of our individual clients and we would recommend that you take financial and/or tax advice as to the implications (including tax) of investing in any of the products mentioned herein. This document may not be reproduced or copies circulated without prior authority of UBS or a subsidiary of UBS. UBS expressly prohibits the distribution and transfer of this document to third parties for any reason. UBS will not be liable for any claims or lawsuits from any third parties arising from the use or distribution of this document. This report is for distribution only under such circumstances as may be permitted by applicable law. In developing the Chief Investment Office economic forecasts, CIO economists worked in collaboration with economists employed by UBS Investment Research. Forecasts and estimates are current only as of the date of this publication and may change without notice. External Asset Managers / External Financial Consultants: In case this research or publication is provided to an External Asset Manager or an External Financial Consultant, UBS expressly prohibits that it is redistributed by the External Asset Manager or the External Financial Consultant and is made available to their clients and/ or third parties. Australia: 1) Clients of UBS Wealth Management Australia Ltd: This notice is distributed to clients of UBS Wealth Management Australia Ltd 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.: This Document contains general information and/or general advice only and does not constitute personal financial product advice. As such the content of the Document was prepared without taking into account the objectives, financial situation or needs of any specific recipient. Prior to making any investment decision, a recipient should obtain personal financial product advice from an independent adviser and consider any relevant offer documents (including any product disclosure statement) where the acquisition of financial products is being considered. 2) Clients of UBS AG: This notice is issued by UBS AG ABN 47 088 129 613 (Holder of Australian Financial Services Licence No 231087): This Document is issued and distributed by UBS AG. This is the case despite anything to the contrary in the Document. The Document is intended for use only by Wholesale Clients as defined in section 761G (Wholesale Clients) of the Corporations Act 2001 (Cth) (Corporations Act). In no circumstances may the Document be made available by UBS AG to a Retail Client as defined in section 761G of the Corporations Act. UBS AGs research services are only available to Wholesale Clients. The Document is general information only and does not take into account any persons investment objectives, financial and taxation situation or particular needs. Austria: This publication is not intended to constitute a public offer or a comparable solicitation under Austrian law and will only be used under circumstances which will not be equivalent to a public offering of securities in Austria. The document may only be used by the direct recipient of this information and may under no circumstances be passed on to any other investor. Bahamas: This publication is distributed to private clients of UBS (Bahamas) Ltd and is not intended for distribution to persons designated as a Bahamian citizen or resident under the Bahamas Exchange Control Regulations. Bahrain: UBS AG is a Swiss bank not licensed, supervised or regulated in Bahrain by the Central Bank of Bahrain and does not undertake banking or investment business activities in Bahrain. Therefore, Clients have no protection under local banking and investment services laws and regulations. Belgium: This publication is not intended to constitute a public offering or a comparable solicitation under Belgian law, but might be made available for information purposes to clients of UBS Belgium NV/SA, a regulated bank under the Commission Bancaire, Financire et des Assurances, to which this publication has not been submitted for approval. Canada: In Canada, this publication is distributed to clients of UBS Wealth Management Canada by UBS Investment Management Canada Inc.. Dubai: Research is issued by UBS AG Dubai Branch within the DIFC, is intended for professional clients only and is not for onward distribution within the United Arab Emirates. France: This publication is distributed by UBS (France) S.A., French socit anonyme with share capital of 125.726.944, 69, boulevard Haussmann F-75008 Paris, R.C.S. Paris B 421 255 670, to its clients and prospects. UBS (France) S.A. is a provider of investment services duly authorized according to the terms of the Code Montaire et Financier, regulated by French banking and financial authorities as the Banque de France and the Autorit des Marchs Financiers. Germany: The issuer under German Law is UBS Deutschland AG, Bockenheimer Landstrasse 2-4, 60306 Frankfurt am Main. UBS Deutschland AG is authorized and regulated by the Bundesanstalt fr Finanzdienstleistungsaufsicht. Hong Kong: This publication is distributed to clients of UBS AG Hong Kong Branch by UBS AG Hong Kong Branch, a licensed bank under the Hong Kong Banking Ordinance and a registered institution under the Securities and Futures Ordinance. 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 regulations. Securities mentioned in this material have not been, and will not be, registered under the Indonesian Capital Market Law and Regulations. Italy: This publication is distributed to the clients of UBS (Italia) S.p.A., via del vecchio politecnico 3, Milano, an Italian bank duly authorized by Bank of Italy to the provision of financial services and supervised by Consob and Bank of Italy. UBSItalia has not participated in the production of the publication andofthe research on investments and financial analysis herein contained. Jersey: UBS AG, Jersey Branch, is regulated and authorized by the Jersey Financial Services Commission for the conduct of banking, funds and investment business. 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 (Luxembourg) S.A., a regulated bank under the supervision of the Commission de Surveillance du Secteur Financier (CSSF), to which this publication has not been submitted for approval. Mexico: This document has been distributed by UBS Asesores Mxico, S.A. de C.V., a company which is not subject to supervision by the National Banking and Securities Commission of Mexico and 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 Mxico, S.A. de C.V. does not guarantee any yield whatsoever. 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 clients of UBS Bank, S.A. by UBS Bank, S.A., a bank registered with the Bank of Spain. 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. 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 and / or to US persons. 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. Version 07/2013. UBS 2013. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.

UBS Chief Investment Office December 2013