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Investment traffic lights

Our tactical and strategic view

Equities*

  Regions 1 to 3 months until June 2016

United States

Europe

Eurozone

Eurozone

While we stay neutral on Europe, we upgrade the Eurozone to overweight. The danger of a “Grexit” appears to have passed its peak so that investors can again focus on corporate data which should benefit from accelerating domestic consumption.

Germany

Germany

Although German equities stand to benefit from several factors, the composition of the DAX is not optimal in the current environment. Car makers could be hit by sluggish Chinese demand, while industrials and chemicals will see a fall in investment.

United Kingdom

Japan

Emerging markets

Asia ex Japan

Asia ex Japan

Rapidly falling prices on the Shanghai and Shenzen exchanges in June and July prompted government countermeasures. The impact on the economy should be limited in our view. Equities will remain volatile but cheaply valued H-shares could offer good opportunities in the months to come.

Latin America

Sectors

Consumer staples

Healthcare

Healthcare

Pricing power, mergers and acquisitions and an ageing society will support the sector in the long run. But it has now outperformed the market for four years and is valued accordingly so that we do not upgrade it beyond neutral.

Telecommunications

Utilities

Consumer discretionary

Energy

Financials

Industrials

Industrials

Low prices for oil and other commodities as well as economic adjustment in China are contributing to the current fall in investment, burdening industrials – more so in Europe than in the United States.

Information technology

Materials

Style

Small and mid cap

Fixed income**

  Rates 1 to 3 months until June 2016

U.S. Treasuries (2-year)

U.S. Treasuries (10-year)

U.S. Treasuries

We are neutral on all U.S. Treasury maturities. Although we still believe that there will be an acceleration in economic growth in the second half of the year, the signals on the timing of the first interest-rate move by the Fed remain ambiguous. A December start looks increasingly possible.

U.S. Treasuries (30-year)

U.K. Gilts (10-year)

Eurozone periphery

German Bunds (2-year)

German Bunds (10-year)

German Bunds

As for most bonds we also expect Bunds to swing back and forth in a trading range for the time being, offering short-term opportunities. Such as going tactically underweight.

Japanese government bonds (2-year)

Japanese government bonds (10-year)

Corporates

U.S. investment grade

U.S. investment grade

We downgrade U.S. corporates to underweight. The market tends to dry out during the summer holiday season, increasing possible volatility, particularly since banks cut back on their trading activities. Additional burdens are a full issuance calendar and the impending Fed hike.

U.S. high yield

EUR investment grade1

EUR investment grade

Despite the ECB's quantitative-easing measures, corporates’ risk premiums have widened for a couple of months, due to uncertainties over Greece. Premiums should narrow again in line with the receding “Grexit” probability. Another problem could be pent-up issuance although the primary market has kept calm of late.

EUR high yield1

Asia credit

Emerging-market credit

Securitized / specialties

Covered bonds1

U.S. municipal bonds

U.S. mortgage-backed securities

Currencies

EUR vs. USD

USD vs. JPY

EUR vs. GBP

EUR vs. JPY

GBP vs. USD

Emerging markets

Emerging-market sovereigns

Alternatives**

Infrastructure

Commodities

Commodities

We remain underweight on commodities. Many commodities still suffer from slowing Chinese demand, compounding the difficulties associated with expanded production capacities. The supply of oil could increase even further after the conclusion of the nuclear deal with Iran which provides for the lifting of economic sanctions.

Real estate (listed)

Real estate (non-listed)

Hedge funds

Private Equity2

*as of 7/15/15

**as of 7/21/15

Source: Deutsche Asset & Wealth Management Investment GmbH

The tactical view (one to three months)

Equity indices:

  • positive view

  • neutral view

  • negative view

Fixed income and exchange rates:

  • The fixed-income sector or the exchange rate is expected to perform well

  • We expect to see a sideways trend

  • We anticipate a decline in prices in the fixed-income sector or in the exchange rate

  • 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 June 2016

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 expected move of 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

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 sovereign bonds is on yields, not trends in bond prices.

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

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

ref-1

1 Spread over German Bunds

ref-2

2 These traffic-light indicators are only meaningful for existing private-equity portfolios

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