London, 5 January 2011

The 2011 outlook continues to be positive for risky assets, underpinned by the disappearance of a double-dip risk, growth in emerging economies and ample liquidity conditions (low rate environment and second round of quantitative easing) according to Société Générale. Developed countries should deliver solid growth in 2011 SG believe, especially after the recent upgrade to the US economic outlook. And given the excess liquidity, the market should continue its quest for higher yielding assets.

Major differences between 2011 and 2010 are likely to emerge. SG have spent the last 10 years talking about the fear of deflation, but we have already entered a period when the fear of inflation should be constant. For EM countries, inflation is already around the corner.

Commodities Outlook, 2011

In SG's view, the 2011 outlook continues to be positive for risky assets, underpinned by the lack of a double dip, growth in emerging economies and ample liquidity conditions (low rate environment and second round of quantitative easing). Hence, they recommend holding ample exposure to equities and commodities.

Developed countries should deliver solid growth in 2011, especially after the recent upgrade to the US economic outlook. And given the excess liquidity, the market should continue its quest for higher yielding assets. These would include EM bonds but not necessarily EM equities. For protection against higher inflation, SG think Japanese equities and gold look good.

Strong EM growth & low rates to fuel investor flows into commodities: SG Highlights

• A combination of ongoing strong economic growth in developing economies, increasing signs of recovery in the US and the prospect of extremely low interest rates in the US and Europe in 2011 is likely to fuel strong US and European investor flows into many commodities.

• The fear of a double dip in the US economy has been replaced by fears of a sharp slowdown in Chinese economic growth as a result of the expected forthcoming policy tightening to curb strong inflationary pressures. Our central scenario is for the Chinese economy to achieve a soft landing and for developing economies in general to grow at pace over the next few years.

• Ongoing very large infrastructure projects in developing countries should underpin demand for base metals, while strong wage growth should increase demand for power, transportation fuel and food (meat in particular). We also expect gold prices to continue to benefit from investor hedging of medium-term inflation risks in a context of quantitative monetary easing.

• Among base metals, copper and nickel stand out with some of the strongest fundamentals. A combination of slow mine supply growth, visible stock drawdowns, and the potential for newly launched ETFs to divert metal away from consumption is likely to push copper prices higher.

• Solid consumption growth for transportation fuel in developing economies is likely to continue in 2011, which combined with stable OECD consumption and a moderate supply increase, should result in a substantial drop in oil inventories from 60 days currently to 56 days by H2 11. This should result in a moderately-paced trend higher in crude and product prices.

• We continue to believe that there is limited upside potential for gasoil and gasoline product cracks over the coming quarters because of significant global excess refinery capacity. Any local product tightness resulting in a spike in crack spreads is likely to be temporary and, we think, should be sold (indeed refiners are likely to be keen sellers of such spikes to lock in higher margins).

• Corn prices are likely to trade much higher over the coming months on very strong fundamentals. We expect global end-of-season corn to stand at just 16% of annual consumption.

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