• Though we believe that Syria and Turkey are not interested in a military confrontation, a stop of crude oil
flows from Iraq via Turkey would curb global incremental crude oil supply in 4Q12 by more than 50%. It
would also tighten up the market balance in early 2013 and put additional pressure on the structurally low
spare capacity in the crude oil market.
• In the absence of a further escalation, which remains our base case, ebbing news related to Syria-Turkey is
likely to ease supply concerns. This should keep the market focus on weak demand growth and strong
crude oil output from North America, allowing the Brent price to temporarily reach USD 95/bbl.
• A weaker USD, reduced economic tail risk for Europe, ongoing social turmoil in the Middle East and
North Africa and the risk that the Iranian topic heats up again after the US presidential elections are likely
to keep the Brent price around USD 105-110/oz in 6 months.
� Positive scenario
Brent 6-month target: USD 140–180/bbl
• Iranian oil exports are subject to a complete embargo, which would drain another 0.5–0.75 mbpd of
global crude oil supply. Alternatively, a military confrontation that affects crude oil supply via the Strait of
Hormuz would be the ultimate supply shock, requiring crude oil to be rationed on a large scale.
� Negative scenario
Brent 6-month target: USD 75–80/bbl
• Political tensions lead to a breakup of the Eurozone or intensify the economic contraction. At the same
time, the Fed is not successful in promoting growth. Supply-wise, a restoration of Iranian exports and no
supply cuts by OPEC would push oil inventories firmly up and weaken Brent prices towards USD 80/bbl.
What we're watching Why it matters
The biggest risk related to a potential military confrontation is an Israeli air strike
Iran tensions
on nuclear facilities in Iran. A preemptive strike could easily destabilize the region
even further and threaten global crude oil supply.
Supply
Changes in the US gasoline blending mandate with ethanol (made from corn)
might fuel higher crude oil prices as spare capacity increases slides further.
US crude oil supply progress (room to grow by 1.3 mbpd from 2011 to 2013) is a
vital offsetting factor to supply outages seen in the MENA region.
Demand
Most of China's demand growth seems to be related to stock building (strategic
and by refineries). If this is true, the import should stay on the weak side y/y.
Recommendations
Tactical (6 months)
• OPEC is in a good position to balance the
oil market, which should limit the price
weakness. Along with central banks'
support and with the geopolitical risks
remaining, we believe that the potential
downside for the oil price has declined,
thereby warranting allocation.
Strategic (3–5 years)
• We regard the long end of the forward
curve in crude oil as mispriced. To satisfy
emerging market demand in the long run,
prices around USD 90–95/bbl are unlikely
to secure the needed investments to keep
supply growing adequately. This gives
strategically oriented crude oil investors
the opportunity to build up some longterm
crude oil exposure over the next
three to five years.
Petroleum demand in selected markets
Year-on-year change – in mbpd
1.2
0.8
0.4
0.0
-0.4
-0.8
0.3
0.4
0.2
0.2
China
Latin
America
2012E
-0.4
-0.2
-0.3
-0.1
Europe
US
0.1
-0.1
Japan
0.2
0.2
0.2
0.2
Middle
East
Other
Asia
2013E
0.7
1.0
World
Oil market reports Key date: 13 Nov, IEA Oil market report Source: UBS, as of Oct. 2012
Note: Past performance is not an indication of future returns.
36
For further information please contact CIO's asset class specialists Dominic Schnider, dominic.schnider@ubs.com or Giovanni Staunovo, giovanni.staunovo@ubs.com
Please see important disclaimer and disclosures at the end of the document.
Base metals
C:\Program Files\UBS\Pres\Templates\PresPrintOnScreen.pot
Preference: neutral
Current (24 Oct) (last month): Copper USD 7,815/mt (8,271); Nickel USD 16,336/mt (18,351);
Aluminum USD 1,912/mt (2,079)
6-month target: Copper: USD 8,800/mt; Nickel: USD 19,000/mt; Aluminum: USD 2,100/mt
UBS View
• After the swift uptick in prices, base metals have been under renewed pressure. The initial price strength
– a simple catch up with Chinese prices triggered by a shift in demand expectations – is losing strength.
• In order to continue the price rally, a firm increase in final metal demand is needed. Since global
economic growth is far from seeing such a demand uptick in industrial activity during 4Q12, we think that
prices are likely to trade only sideways in the coming months before trending higher in 1Q13.
• Loose monetary policy is a good precondition for activity to pick up, but not a guarantee after so many
rounds of monetary stimulus. We therefore look east to China. Although industrial activity growth in China
is likely to bottom out, the upcoming leadership change in the country (November 2012 to March 2013),
will likely delay a bigger investment program into 1Q13. The latest stimulus program will probably prevent
Chinese IP from decelerating even further, but will not lift it meaningfully higher.
• On a single commodity level, we favor copper and nickel. For nickel, short-term supply issues due to a
slower ramp up of new and existing projects have temporarily brought the market closer to balance than
initially expected. Furthermore, we should see higher Chinese stainless steel demand with stabilizing
housing activity and a demand pick up in stainless steel related products.
• With regards to copper, we expect import activity to remain strong, as seen in the import figures for
September. Overall, the copper market should remain undersupplied, which could widen if financial
demand is finding some store of value in the metal. We think this puts structurally low LME inventories at
risk and should push the metal price towards USD 8,800/mt or higher over six months.
� Positive scenario
• China eases monetary policy aggressively, pushing credit growth to 20% y/y. In the US the Fed is able to
lift GDP growth via QE3 and the ECB puts an effective backstop to declining industrial activity.
� Negative scenario
• To passive Chinese authorities keep GDP growth on a constant deceleration path. A severe escalation of
the Eurozone crisis (room for a break-up) triggers a setback in investment activity – including in Germany.
What we're watching
Demand
Supply
Economic data/forward
curve
Why it matters
China's growth deceleration should come to an end. But hard economic activity
indicators, especially for China, have yet to catch up with the increase in prices.
Hence, the current base metal market is already reflecting considerable growth
goodwill that is in need of a demand confirmation by China, the US or Europe.
Copper output continues to undershoot market expectations and should be
watched closely, as investment activity in mines increased sharply. For zinc,
prospects for mine closures have been delayed and should keep the market
oversupplied.
Chinese economic data – trade data, CPI, IP and loan growth by financial
institutions. Key date: 10-15 Oct
Recommendations
Tactical (6 months)
• We reiterate that the strong uptick in
base metal prices is skating on thin ice, in
our view. Real activity has yet to follow
and support prices over a longer time
period. 50% of the upside potential on a
6-month horizon is likely to be behind us,
making only copper and nickel attractive,
with +10% expected return.
Strategic (2 years)
• Although the strongest performance
should be visible in zinc and lead, with
existing mine capacity expected to peak
in 2014/15, the recent price strength
makes such an investment unattractive
now, based on timing. Given a
structurally solid supply side, investors
should avoid aluminum and nickel. A
firmer supply side should also limit the
upside in copper.
Net speculative copper position at
Comex are far from being overstretched
80
60
40
20
0
(20)
(40)
(60)
(80)
In thousand contracts
Jan-93 Jan-96 Jan-99 Jan-02 Jan-05 Jan-08 Jan-11
Long positions Short positions Net long position
Source: Bloomberg, UBS, as of Oct. 2012
Note: Past performance is not an indication of future returns.
37
For further information please contact CIO's asset class specialists Dominic Schnider, dominic.schnider@ubs.com or Giovanni Staunovo, giovanni.staunovo@ubs.com
Please see important disclaimer and disclosures at the end of the document.
Agriculture
C:\Program Files\UBS\Pres\Templates\PresPrintOnScreen.pot
Preference: neutral
Current (24 Oct) (last month): Soybeans, USD 15.17/bu (16.12); Corn, USD 7.54/bu (7.44);
Wheat, USD 8.84/bu (8.87)
UBS View
6-month target: Soybeans: USD 17.0/bu; Corn: USD 9.0/bu; Wheat: USD 9.5/bu
• Major US supply surprises on the grains side are rather unlikely in the near term as harvesting is in full
swing. However, we think that demand is unlikely to drop as quickly as the USDA expects. According to the
latest USDA grain stocks and WASDE reports, feed demand remained surprisingly resilient in 3Q12. To
effectively ration demand, especially on the feed side, in an environment of critically low US corn and
soybean stocks, higher prices are still required. For wheat, global production estimates were further
lowered due to production losses in Australia, EU, Russia for 2012/13, which likely keeps prices supported in
the near term. We expect corn and soybean prices to appreciate by 15% in the coming months.
• On the other side, the softs are likely to remain well supplied, which should keep prices under pressure.
Improved export activity of coffee and strong stock selling from Vietnam in 4Q12 should weigh on coffee
prices in the short-term. For sugar, higher production from Brazil and other producers should continue to
burden prices in the near term, but also offer buying opportunities on a 12-month perspective.
• Aggregating the above points, the risk/reward for being long across the entire sector is not a given. We
therefore reiterate our neutral sector stance.
� Positive scenario
Corn 6-month USD 10/bu; Soybeans 6-month USD 19/bu
• With a reduced probability of El Niño, the yield potential for South American crops is likely to be lower.
Any deterioration in South American supply prospects would require additional demand to be rationed.
� Negative scenario
Corn 6-month USD 6/bu Soybeans 6-month USD 12.5/bu
• A change of the US ethanol-gasoline blending mandate would be a game changer. Increases in planted
acreage combined with a steep decline in US demand for exports and feed would weigh on prices.
Recommendations
Tactical
• Despite the recent setback in corn prices,
risk-seeking investors should still hold on
to long positions in corn. Demand
rationing is still required to limit the drag
on inventories. The expected return
target for a long position in corn stands
at 15%.
Strategic
• Our expected return outlook for grains
stands at around –10% over the next 12
months. With grain prices not far below
historical highs, the supply side is highly
likely to expand meaningfully in 2013/14
and pressurize prices at a later stage. On
the soft side, 3Q12 does not offer the
right timing to build up positions.
US grains stocks continue to drop,
demand remains resilient
Values in mn tons
What we're watching
USDA WASDE report
(monthly)
US grains stock report
(quarterly)
USDA crop progress
(weekly, Monday)
COT (weekly, Friday)
Why it matters
Revisions in acreage and yield estimates for the US crops remain a topic. Demand
estimates are important, too, as they are key drivers behind inventory levels at
the end of the year. Key date: 9 Nov
The latest stocks data is not correctly reflecting the demand for Jun-Aug’12 as it
contains both old and new crop stock figures. We expect stocks as of 1 Dec to
reflect the true demand picture. Key date: Jan 2013
Faster US grain harvests than usual have been exerting downward pressure on
prices in the short run, which have reversal potential at a later stage.
Investors' net long positions in grain futures are still at high levels, but stable
80
70
60
50
40
30
20
10
0
1st Sep'10 1st Sep'11 1st Sep'12
Jun-
Aug'10
Jun-
Aug'11
Stocks
Demand
Corn Wheat Soybean
Jun-
Aug'12
Source: USDA, UBS, as of Oct. 2012
Note: Past performance is not an indication of future returns.
38
For further information please contact CIO's asset class specialists Dominic Schnider, dominic.schnider@ubs.com or Giovanni Staunovo, giovanni.staunovo@ubs.com
Please see important disclaimer and disclosures at the end of the document.
Listed real estate
C:\Program Files\UBS\Pres\Templates\PresPrintOnScreen.pot
Preference: neutral
UBS Global Index DTR (24 Oct): 1,490 (last month: 1,500)
UBS View UBS Global Index DTR (6-month target): 1,600
• Since July global listed real estate has again performed well. Despite the good performance the asset class
remains slightly attractive based the high dividend yield and implied property yield compared to bonds.
Asia has been the strongest performer and Europe has outperformed the US year-to-date as tail risk was
reduced by the ECB launching the OMT. QE3 is not an imminent performance driver but provides a support
for capital values going forward and helps to keep interest levels low.
• Due to the current search for yields, listed real estate companies are able to refinance their investments at
lower yields with longer maturities. The implied property yields to bonds and earnings yields over five-year
swap rates are even more attractive due to low interest rates offering good opportunities within the global
real estate space.
• Low to decent supply of commercial surfaces helps to push vacancy rates down which in turn increases
the rent. We further see capital appreciation as possible in the light of overall stable fundamentals.
• Asia remain the positive performance generators in our view as this is the more cyclical market, whereas
Australia is supported by high dividend yields. Overall Europe remains comparatively weak, while the UK
and the US have already priced in some market improvements.
� Positive scenario UBS Global Index DTR (6-month target): 1,650
• Improving fundamentals maintain listed real estate in fairly valued territory, despite stronger
performance as occupancy rates grow faster than expected and rental income accelerate. Ongoing
reflationary monetary policies across the world help to maintain favorable spreads between rental yields
and bonds, maintaining real estate as a comparatively attractive asset class. Refinancing costs remain low.
� Negative scenario UBS Global Index DTR (6-month target): 1,300
• US, European and Chinese growth rates disappoint investor expectations and cause the comparatively
high valuation levels in the US to partially correct. Furthermore, a more severe recession in Europe triggers
a tightening of credit standards and cuts real estate companies from the capital market, making listed real
estate more dependent than ever on bank financing. Real estate underperforms global equities.
What we're watching
Corporate bond yields
Rental yield and capital
appreciation
Credit markets and
financing costs
Note: Scenarios refer to global economic scenarios (see slide 7)
Why it matters
This is one of the best indicators for listed real estate as a low yield helps reduce
financing costs. A steep yield curve is furthermore a signal that the overall
economic environment is improving. Both are currently supportive.
The rental yield is usually inflation linked, as the upcoming supply is currently low
this pushes up the occupancy rates and thus increasing the rents. Capital
appreciation is expected to be stable to positive. Overall are both supportive.
Lending conditions are still challenging for developers and private investors.
Public companies by contrast have very good access to credit and capital.
Recommendations
Tactical (6 months)
• We continue to be neutral global listed
real estate recommending to have
exposure to the Hong Kong, Singapore
and Australia markets. The asset class is
overall slightly attractive on relative
valuation and the current low interest
rate is supportive, but the uncertain
environment warrants a neutral stance.
Strategic (1 to 2 years)
• Real estate is supported by several factors
in the long term. We anticipate a gradual
increase in payout ratios coupled with
portfolio optimizations and ongoing costcutting.
A weak economy limits strong
rental growth, but low supply supports
high occupancy rates keeping rents up.
Preference (6 months)
Our market preferences for listed real estate*
North America
Cont'l Europe
UK
Japan
Hong Kong
Singapore
Australia
-- - neutral + ++
Old
New
* This is our relative preference within the global real estate
sector based on UBS Global Real Estate Index domestic total
return, which is not the overall sector view
Source: UBS, as of 16 October 2012
Note: Past performance is not an indication of future returns.
39
For further information please contact CIO's asset class specialist Thomas Veraguth, thomas.veraguth@ubs.com
Please see important disclaimer and disclosures at the end of the document.
Hedge funds
C:\Program Files\UBS\Pres\Templates\PresPrintOnScreen.pot
UBS View
Prefer Relative-value and Event-driven
• We expect hedge funds (HF) to offer positive asymmetric return characteristics due to active risk
management and stop-loss strategies. On the active risk side of the equation, we have seen lower gross
exposure and net-market exposure within the overall hedge funds group, with traders being cautiously
positioned. With systemic risk at bay, we favor relative-value (RV ) and event-driven (ED) strategies.
• The inherent hedging in relative value is appealing. Credit relative-value managers should perform well
in this environment of higher fixed-income volatility and increasing pricing anomalies created by central
bank interventions and limited competition.
• While ED managers share some of the performance drivers, idiosyncratic bets reduce the correlation to
markets. The real reason to own this strategy, however, is the potential for outsized returns in distressed,
high-yield, and other credit investments as the Eurozone crisis plays out.
� Positive scenario
Prefer Equity long-short
• Reduced uncertainty (e.g. resolution in Europe) lowers equities' correlation and volatility. This helps
bottom-up fundamental analysis and equity long/short managers the most. Also, CEOs will likely make
more corporate transactions that can be monetized by event-driven managers, and a clearer
macroeconomic environment with more persistent trends would support CTA managers.
� Negative scenario
Prefer Trading (Global Macro + CTA)
• So far this year, the market has remained plagued by short-term reversals, due to central banks'
intervention and stimulus effects, an obstacle for trend-following managers. Still, if the European
deleveraging (or fiscal cliff, China hard landing) is unmanaged, this could threaten risky assets. Trading
can do well if such a scenario unfolds.
Note: Scenarios refer to global economic scenarios (see slide 7).
Recommendations
Strategic (1 to 2 years)
• Recommendation: Active risk
management is instrumental for capital
preservation during adverse market
conditions. At the moment, we therefore
favor relative-value and event-driven
strategies, since they are less correlated to
equity markets and other risky assets than
trading.
• Value proposition: Hedge funds should
achieve robust performance over an
extended horizon, while displaying
limited volatility vis-à-vis equities and
other risky assets. Hedge funds try to
minimize downside losses in adverse
market conditions (e.g. active risk
management), which plays a crucial role in
wealth appreciation. Similarly, hedge fund
managers attempt to capture most of the
upside of risky assets owning to valid
value preposition.
What we're
watching
Global equity direction/
economic cycle
Correlation
Leverage
Volatility
Liquidity
Regulation
Why it matters
The outlook for global equities is an important HF performance driver. The
economic cycle impacts the strategies differently.
Correlation is an important performance/alpha driver for equity long/short, the
largest HF strategy by assets under management.
Gross and net leverage are key to monitoring risk.
The direction influences certain HF strategies (e.g. convertible arbitrage).
Important in particular for large, less nimble HFs, it enables them to enter and
exit their strategies.
Volcker rule, USCITS III/IV
Performance, year-to-date
Relative value
Event driven
Trading
Equity hedge
Hedge Funds
-2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5%
Source: HFRI, UBS, as of 31 Sep 2012
Note: Past performance is not an indication of future returns.
40
For further information please contact CIO's asset class specialist Cesare Valeggia, cesare.valeggia@ubs.com
Please see important disclaimer and disclosures at the end of the document.
Private equity
C:\Program Files\UBS\Pres\Templates\PresPrintOnScreen.pot
Prefer small-/mid-cap buyouts in US/emerging markets;
UBS View
distressed debt in Europe
• Global M&A volume has continued its downward trend since Q4 2010, falling by -20% quarter-by-quarter
in Q3 2012, with a drastic decline in Europe of -46%, the third lowest quarter since 2001. However, private
equity withstood the negative M&A environment as global activity grew by +13% in Q3, and the US posted
its strongest quarter since Q3 2007. The importance of private equity in emerging markets continues to
grow, now accounting for 13% of global activity, strongly driven by Asia, but increasingly also by Africa.
• We prefer buyout strategies in North America, given reasonable valuations, liquid debt markets and our
house view of economic outperformance vs. Europe. Emerging markets offer compelling opportunities for
PE investors, especially outside the main hubs (China, Brazil), which have become expensive. Distressed
strategies which focus on acquiring complex/illiquid loan positions from banks in Europe are also attractive.
� Positive scenario
Prefer small-/mid-cap buyout and secondaries
• An abating Eurozone debt crisis and improved business confidence would increase deal flow and exit
opportunities for private equity managers, but would also increase entry prices. In such a positive scenario,
we would perceive commitment strategies to secondary funds as attractive for building exposure to an
invested private equity portfolio.
� Negative scenario
Prefer distressed debt
• A renewed escalation of the debt crisis would significantly impact deal activity, the availability of debt
and company owners' willingness to sell. At the same time, it would offer even more attractive
opportunities within distressed strategies and lower entry prices for long-term private equity investors.
What we're watching
Credit markets
Exit activity
Sector activity
Note: Scenarios refer to global economic scenarios (see slide 7)
Why it matters
In H1 2012, leveraged loan issuance, an important ingredient of PE activity,
dropped 17% y/y in the US, but over 41% in Europe. The US debt market is
much deeper than Europe, raising over EUR 153bn of leveraged debt, while
Europe achieved only EUR 16bn in 1H 12 at less attractive conditions.
Exit activity is an important indicator for the health of the PE market and a key
return driver for investors. Despite the difficult macro environment,
distributions from portfolio sales (USD 69bn) have held up, and grew 20% yoy.
Transactions in consumer discretionary and in energy & utilities remain the
most preferred sectors for private equity investors in 2012.
Recommendations
Strategic (1 to 2 years)
• In Europe, the ongoing deleveraging has
led to attractive opportunities for special
situations. We thus recommend pursuing
less liquid investment strategies with a
preference for debt to benefit from the
macroeconomic adjustment process and
selling pressure for many European banks.
• We prefer small-/mid-cap buyouts in North
America given the better economic
outlook vs. Europe, higher transaction
certainty and more attractive entry prices.
• Investors looking for downside protection
during economic uncertainty can consider
large-cap buyouts in the US, which offer
exposure to large, diversified companies
at more attractive prices and are
supported by liquid debt markets.
• We advise investors make an ongoing
allocation to private equity in emerging
markets, which offer an attractive way to
capture superior long-term growth and
gain access to small-/mid-cap companies
unavailable on the stock market.
The US has seen its strongest quarter since
Q3 2007, while sentiment in Europe remains
weak
USD billions
50
40
30
20
10
0
Q1
2010
Q2
2010
Q3
2010
Q4 Q1 Q2 Q3
2010 2011 2011 2011
US Europe RoW
Q4
2011
Q1
2012
Q2
2012
Q3
2012
Source: S&P, UBS CIO, as of October 2012
Note: Past performance is not an indication of future returns.
For further information please contact CIO's asset class specialist Stefan Brägger, stefan.braegger@ubs.com
Please see important disclaimer and disclosures at the end of the document.
Note: We emphasize the equal importance of fund manager selection and the commitment strategy. Please note that private equity is an illiquid asset class and must be held at least until the end of the fund (10+ years).
Please note that UBS might not have a product available which reflects our UBS CIO private equity recommendations. Private equity is only suitable for qualified investors (> USD 5m investable assets).
41
Contact list
C:\Program Files\UBS\Pres\Templates\PresPrintOnScreen.pot
UBS WM Global Chief Investment Officer
Alexander Friedman
alexander.friedman@ubs.com
UBS WM Head of Investment
Mark Haefele
mark.haefele@ubs.com
UBS WM Global Investment Office
Themes / UHNW
Simon Smiles
simon.smiles@ubs.com
Asset Allocation Advisory
Mark Andersen
mark.andersen@ubs.com
Asset Allocation Discretionary
Mads Pedersen
mads.pedersen@ubs.com
Alternative Investments
Andrew Lee
andrew.lee@ubs.com
Kiran Ganesh
kiran.ganesh@ubs.com
Karsten Bagger
karsten.bagger@ubs.com
Christophe de Montrichard
christophe.de-montrichard@ubs.com
James Purcell
james.purcell@ubs.com
Achim Peijan
achim.peijan@ubs.com
Walter Edelmann
walter.edelmann@ubs.com
Christopher Wright
christopher-zb.wright@ubs.com
Philipp Schöttler
philipp.schoettler@ubs.com
Markus Irngartinger, CFA
markus.irngartinger@ubs.com
Oliver Malitius
oliver.malitius@ubs.com
Matthias Uhl
matthias-w.uhl@ubs.com
UBS WM Regional Chief Investment Officers (CIO)
Regional CIO Europe
Andreas Höfert
andreas.hoefert@ubs.com
Regional CIO Asia-Pacific
Yonghao Pu
yonghao.pu@ubs.com
Regional CIO Asia-Pacific
(South)
Kelvin Tay
kelvin.tay@ubs.com
Regional CIO Emerging Markets
Jorge Mariscal
jorge.mariscal@ubs.com
Regional CIO Switzerland
Daniel Kalt
daniel.kalt@ubs.com
42

Disclaimer
C:\Program Files\UBS\Pres\Templates\PresPrintOnScreen.pot
UBS CIO WM Research is published by Wealth Management & Swiss Bank 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
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Version 10/2012.
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