North American Investment Daily; Upgrade & Downgrades

Quake damage and disruption underestimated — We have turned bearish on the auto sector, lowering our ratings across our coverage. Although sector share prices have fallen an average of 11% in the initial selloff following the March 11 earthquake, we do not think the fall in earnings and slowness of the recovery have been fully priced in yet. While some investors may be tempted to position for a recovery in H2 and out, the full extent of damage to the supply chain and production disruption from the power outages is being underestimated by the market, and we would avoid the sector as things stand.

March SSS Review The Easter Bunny Hopped in Early with March Results Better than Expected Across the Board-March SSS were better than expected for the discounters, clubs, and department stores with all of our companies exceeding our estimates (SKS delivered the most upside surprise). Despite the negative impacts of unfavorable weather, rising gas prices, negative headlines abroad, and the Easter shift, consumers continued to shop. Mall traffic improved throughout the month into Week 4 (turning positive in Weeks 3 and 4), and then turned negative in Week 5 due to the Easter shift. Consumers also padded their wallets with higher tax refunds in March (+15.6% YOY). We believe inventories remain well-managed, which should bode well for 1Q11 EPS.

Global Emerging Markets Strategist EM Quarterly: Resilience

Bullish — We stay bullish and expect further solid gains in EM equities to end- 2011. Our year-end target for the MSCI GEMs index is 1,500, 25% above current levels. With EPS growth of 18% in 2011, this implies some multiple expansion to 12.9x forward earnings, 12% above the long-term average for the asset class of 11.5x.

Resilience — The strong rally in EM equities since late-February and a 1.7% gain in Q1 showed great resilience to the negative events so far this year – MENA unrest, sharply higher oil prices, and the Japanese earthquake


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