。A basket of quality-growth stocks, less exposed to macrouncertainties2Low macro visibility clouding the market outlook: While markets have rebounded YTD,uncertainties remain high. This raises the risk that markets remain volatile over the comingmonths.In our view, the primary concern for equity market investors relates to growth: Thesharp downtick in Chinese growth in 2H18, decelerating US growth (fading tailwinds fromtax breaks and rising rates) and, importantly, continuing uncertainty about the trade dispute. A hybrid approach: In this note, we use a hybrid approach (top-down screens combinedwith bottom-up inputs) to identify a basket of stocks that we believe is well suited to performamid current uncertain times. We first narrow our initial list of ~1,300 stocks down to ~100based on liquidity, ROE (over ~10%) and EPS growth (two-year CAGR of 10-15%+) andthen further whittle it down based on analyst inputs (on macro and valuations).CS analysts’ inputs on five parameters: Our analysts specifically provide their scores forthe shortlisted companies on the following parameters: (1) sensitivity to US economicgrowth; (2) China economic growth; (3) exposure to the US-China tariff dispute; (4)fundamental strength of the companies’ business; and (5) valuations relative to history. We apply a HOLT filter too: In addition to using analysts inputs, we also apply a minimumCredit Suisse HOLT CFROI threshold to arrive at our final list of 33 stocks. This finalbasket of stocks scores highly on HOLT’s quality and momentum scorecard, too. January 2019A hybrid approach to identifying quality-growth stocks Top-down screening to narrow down to ~100 names from ~1,300 stocks3Step 1: Market cap and liquidity filters to arrive at first shortlist of 500+ stocks: Outof a total coverage universe of ~1,300 stocks across Asia Pacific, we select stocks withmarket cap of US$5 bn+, and 6M ADTV of US$5 mn+. In the case of ASEAN companies,we relax the criteria to include companies with slightly lower market cap and liquidity. Step 2: RoE and EPS CAGR filters help us reduce the list to ~100 stocks: From thislist, we select companies which offer a healthy EPS CAGR of 15%+ over 2018-20E and atleast an ROE of 10%. For some countries, we relax the criteria slightly as those countries (orrepresentative sectors) are either in a mature growth phase, or are going through a cyclicalweak phase. This exercise provides us with a list of ~100 stocks. Well diversified list of stocks: In this list of ~100 stocks, ~25% of stocks are fromChina/Hong Kong, followed by ~20% from India and ~10% each from Japan and Thailand.In terms of sector composition, ~25% of stocks are from the financials sector, followed by17% from technology, 16% from consumer staples and another 13% from consumerdiscretionary. We asked CS analysts to rate these ~100 stocks on various macro,fundamentals and valuation parameters (see next slide). January 2019A hybrid approach to identifying quality-growth stocks Analyst inputs and HOLT threshold yielded our final basket4Step 3: Analyst inputs: We asked our analysts to score the companies on the belowparameters and then shortlisted companies with ascore of 18+ (out of a maximum of 25).#1: US revenue contribution: CS analysts provided scores from 5 (best placed) to 1(most impacted) based on sensitivity to the US market. For example, a score of 5implies 0-10% revenue exposure to US; a score of 1 implies 70-100% contribution. #2: Chinese economic growth: For non-China/HK stocks, an exposure of 70-100%to China revenues led to a score of 1, while 0-10% revenue exposure earned a score of5. In the case of Chinese stocks, analysts provided their judgement on revenuesensitivity to Chinese economic growth (rather than contribution of China revenues). #3: US-China trade dispute: Companies exposed to the tariff dispute (for example,tech exports) scored low while those, which would not be impacted, scored higher.#4: Fundamental strength of the business: Companies/sectors which are structuralgrowth stories (early growth stage; strong economic moat) scored high while those withweak sector dynamics (high competition, low entry barriers, etc.) scored low.#5: Valuation relative to history: Stocks trading at a significant premium to historicalvaluations scored lower, while those which have corrected sharply scored higher.Step 4: HOLT threshold: Finally, we chose stocks that sported at least a 10% CS HOLTCFROI for FY1 (or at least 8% CFROI, if the two-year EPS CAGR was over 15%) andarrived at our final basket of ~30 stocks.January 2019。。。。。。