GLOBAL FINANCIAL
SECTOR OUTLOOK 2Q07
Get back in the flow
• We view the recent spike in volatility as transitory,
although we feel there may be another cycle of risk
aversion later in the year.
• Unusually, in the recent risk-aversion cycle, financials
underperformed, throwing up some opportunities.
• In Europe, we highlight UBS and ING as attractive stocks
and still believe that the insurance sector merits an
Overweight ranking.
• We are still cautious on US banks, favouring the asset
management and financial technology sectors as
Overweights.
• In Asia, we still like the bank sectors, ranking them as
Overweight, with Asian insurance ranked Marketweight.

TABLE OF CONTENTS
Sector ranking and top stock recommendations .............................................................5
Financial sector performance.............................................................................................6
Get back in the flow .............................................................................................................8
Summary ......................................................................................................................................... 8
Volatility in previous cycles............................................................................................................... 9
This sell-off is different from May 2006............................................................................................10
Contagion? Only in equities.............................................................................................................13
Reasons to be cheerful on equities .................................................................................................16
Subprime contagion unlikely............................................................................................................18
Yen carry, not a problem yet ...........................................................................................................20
Contagion for the US economy? .....................................................................................................21
Moving from ebb to flow ..................................................................................................................24
Valuation and earnings comparisons..............................................................................26
Economic and market outlook..........................................................................................38
Economic outlook ............................................................................................................................38
Market background.........................................................................................................................39
US Banks............................................................................................................................45
European Banks.................................................................................................................49
Global Investment Banks ..................................................................................................52
Asia ex-Japan Banks .........................................................................................................54
Japanese Banks.................................................................................................................56
US General Insurance........................................................................................................58
European Insurance...........................................................................................................61
Japanese Insurance...........................................................................................................63
Asia ex-Japan Insurance...................................................................................................65
US Financial Technology ..................................................................................................67
US Asset Managers............................................................................................................71
US Financial Guaranty.......................................................................................................75
Japanese Non-Bank Financials ........................................................................................77
European General Financials............................................................................................78
Global Market Structure ....................................................................................................81
Appendix: price performance ...........................................................................................84
Disclosures......................................................................................................................101