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Investment traffic lights



1 to 3 months

until March 2018

United States




Germany (equities)

We upgraded German equities back to overweight in February. Company orders, not least from Asia, look solid. Meanwhile, confidence is growing that the U.S. president will not get far with potential protectionist measures. In 2017, we expect rising earnings and record cash distributions for German companies. Even though valuations leave only limited further upside, we think that investors might rediscover Europe and Germany, if it becomes clearer that Marine Le Pen will not become the next French president.


United Kingdom (UK)

Emerging Markets

Emerging markets (equities)

Emerging markets lagged global equity markets from 2010 to 2016. We initially viewed their recovery in 2016 with some skepticism, as it was closely tied to the oil price. By now, however, we see signs of political and economic progress in many emerging markets. The double shock of Donald Trump winning the U.S. presidency and the Fed increasing interest rates again has been well digested. At the same time, many central banks in emerging markets have scope to loosen policy. Stock selection remains critical, however.

Asia ex Japan


Japan (equities)

Fundamentally, Japan remains on solid footing. Corporate balance sheets are healthy, earnings are rising and both companies and the Bank of Japan continue to buy equities. However, the strength of the yen compared to the U.S. dollar causes some headwinds. We also fear that companies will be cautious in their forecasts during the current earnings season. Furthermore, institutional investors might continue to shift allocations from Japan into emerging markets. At least for now, we are downgrading Japanese equities to neutral.

Latin America


Consumer staples




Consumer discretionary




Information technology


Real Estate

Real estate (equities)

In line with the new MSCI classification, we are adding real estate as a new sector category. Until now, these companies were part of the financial sector. Our initial assessment is underweight. This reflects the somewhat reduced attractiveness of bond-like real-estate equity instruments, given stabilizing interest rates, albeit at a low level, and a robust economic backdrop.


Small and mid cap

Fixed income**


1 to 3 months

up to March 2018

U.S. Treasuries (2-year)

U.S. Treasuries (10-year)

U.S. Treasuries (30-year)

UK Gilts (10-year)

Italy (10-year)

Italian government bonds (10-year)

We have put Italian government bonds on overweight. The spread of almost 200 basis points compared to Bunds looks excessive to us. While we see Italy as one of the biggest potential political risk factors in coming quarters, we consider it more likely than not that new parliamentary elections will only take place in 2018, rather than in 2017. If discussions of ECB tapering become more concrete, we would have to revisit our view. Lately, however, indications from the central bank have mostly been reassuring that it is in no rush.

Spain (10-year)

German Bunds (2-year)

German Bunds (10-year)

German Bunds (10-year)

We only see a low probability of 10-year yields revisiting negative territory. Of course, soothing talk by the ECB and lower inflation could give Bunds a lift. If, as we expect, Le Pen does not win in France, however, and tapering discussions resume in summer, Bunds are less likely to benefit from their safe-haven appeal and yields should rise again.

German Bunds (30-year)

Japanese government bonds (2-year)

Japanese government bonds (10-year)


U.S. investment grade

U.S. investment grade

We remain buyers of U.S. investment-grade bonds, as we see some more room for spread tightening. Demand-supply dynamics are still favorable, as are receding default rates, based on accelerating economic growth and a more stable oil price. We prefer certain sectors, such as technology. There is, however, room for disappointment should the U.S. government fail to deliver on its tax reform.

U.S. high yield

Euro investment grade

Euro high yield

Euro high yield

We remain neutral on euro high yield. Relatively low default rates, improving balance sheets, an improving economy and fatter coupons all speak for this asset class. We expect, however, that spreads to Bunds will continue to move sideways at best. Companies are well aware of investor interest in this segment and are pricing new issues accordingly. Value can be found by being selective.

Asia credit

Emerging-market credit

Securitized / specialties

Covered bonds

U.S. municipal bonds

U.S. mortgage-backed securities







Emerging markets

Emerging-market sovereigns




Real estate (listed)

Real estate (non-listed)

Hedge funds

Private Equity2

Investment traffic lights: comments regarding our tactical and strategic view

Tactical view:

— The focus of our tactical view for fixed income is on trends in bond prices, not yields.

Strategic view:

— The focus of our strategic view for corporate bonds is on yields, not trends in bond prices.

— For corporates and securitized/specialties bonds, the arrows depict the respective option-adjusted spread.

— For bonds not denominated in euros, the illustration depicts the spread in comparison with U.S. Treasuries. For bonds denominated in euros, the illustration depicts the spread in comparison with German Bunds.

— For emerging-market sovereign bonds, the illustration depicts the spread in comparison with U.S. Treasuries.

— Both spread and yield trends influence the bond value. Investors who aim to profit only from spread trends must hedge against changing interest rates.


The tactical view (one to three months) Equity indices, fixed income and exchange rates:

  • Positive view

  • Neutral view

  • Negative view

  • A circled traffic light indicates that there is a commentary on the topic.

The traffic lights’ history is shown in the small graphs.

The strategic view up to March 2018

Equity indices, exchange rates and alternative investments:

The arrows signal whether we expect to see an upward trend ( ), a sideways trend ( ) or a downward trend ( ) for the particular equity index, exchange rate or alternative asset class.

Fixed income:

For sovereign bonds, denotes rising yields, unchanged yields and falling yields. For corporates, securitized/specialties and emerging-market bonds, the arrows depict the option-adjusted spread over U.S. Treasuries, if not stated differently. depicts an expected widening of the spread, a sideways spread trend and a spread reduction.

The arrows’ colors illustrate the return opportunities for long-only investors.

  • positive return potential for long-only investors

  • limited return opportunity as well as downside risk

  • high downside risk for long-only investors

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